af-fsfe,

I understand your frustration at this regression.  Please realize,
though, that filesystem-level encryption of /home is at the bottom of a
long list of disk encryption solutions that should be preferred over
this in all but the most specific of corner cases:

 - full-disk encryption of a single partition including / and /home
 - encryption of a single LVM VG containing both / and /home filesystems
 - disk-level encryption of /, /home on a separate unencrypted filesystem using 
ecryptfs for user-level encryption
 - passphrase-based encryption of /, with keyfile-based encryption of other 
partitions

All of the above work in karmic; the only configuration that really
doesn't work is passphrase-based encryption of disks other than the root
partition.  This is a bug, certainly, and will be resolved for the 10.04
LTS release; but it was not a blocker for the 9.10 release, with reason.

-- 
cryptsetup prompt is overriden by upstart and xsplash in Karmic
https://bugs.launchpad.net/bugs/434232
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