I'm experiencing a similar problem with a different configuration.  The
system hangs sometime after entering the key in a normal boot.  If I
perform a recovery boot it appears to hang because the key prompt is on
tty7.  Another oddity is that as I enter the key, it seems like a
newline gets printed after each keystroke which causes a new prompt line
to appear although it still accepts the key.

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[lucid] Plymouth/cryptsetup not prompting for passphrase leads to non-mounted 
/home
https://bugs.launchpad.net/bugs/497480
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