I also confirm this bug in Lucid with all updates.  The problem is
inside  /etc/init.d/ondemand  script. (Bug #576022)

At line 19:

... /etc/init.d/ondemand -- background

should be changed to

... /etc/init.d/ondemand background.

Ondemand script waits for 60s after startup and then swithes CPU scaling to 
ondemand mode. It considers only [start|background|stop] as the first 
parameters when being run, so "--" is something which causes the script to do 
nothing.
This solves the problem (at least for my laptop with Pentium Dual Core, fresh 
installation of Ubuntu 10.04). However this problem does not occur on my 
desktop (Core2Duo, recent upgrade from Interpid to Lucid) although I have not 
removed the mistake from ondemand script...  strange

-- 
CPU Frequency Scaling defaults to "Performance" instead of "OnDemand"
https://bugs.launchpad.net/bugs/344252
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