The title of this bug is wrong: It does not only affect LVM and not only
the server edition. I have this problem on 10.04 desktop edition without
LVM.

The description is also incorrect. The process is  as follows:

Unlocking the disk ... (sda5_crypt)
Enter passphrase: :*
Unlocking the disk ... (sda5_crypt)
Enter passphrase: :**
Unlocking the disk ... (sda5_crypt)
Enter passphrase: :***
Unlocking the disk ... (sda5_crypt)
Enter passphrase: :****
Unlocking the disk ... (sda5_crypt)

I have the problem with a crypted / partition. Becomes visible when
deleting splash quiet in the kernel options line of grub.cfg.

This bug should be associated with the cryptsetup package.

-- 
Ubuntu Server Encrypted LVM password prompt: every character typed repeats the 
prompt
https://bugs.launchpad.net/bugs/566818
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