This should be fixed upstream:
http://hg.fedorahosted.org/hg/virt-manager/rev/09484a201bda
(first upstream release to include the fix is 0.8.0, so fixed in Lucid)
** Changed in: virt-manager (Ubuntu)
Status: Incomplete => Fix Released
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virt-manager cannot create image file
https://bugs.launchpad.net/bugs/405388
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