Same issue here, with Lucid, all updates applied:
Linux lappc-p087.in2p3.fr 2.6.32-23-generic #37-Ubuntu SMP Fri Jun 11
07:54:58 UTC 2010 i686 GNU/Linux
DISTRIB_ID=Ubuntu
DISTRIB_RELEASE=10.04
DISTRIB_CODENAME=lucid
DISTRIB_DESCRIPTION="Ubuntu 10.04 LTS"
** Changed in: update-manager (Ubuntu)
Status: Incomplete => New
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update manager should show invalid sudo password warning
https://bugs.launchpad.net/bugs/338151
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