Happens to me in 10.04.  I do _not_ have 'Install security updates without 
confirmation' enabled.
As others have indicated, it happens after the Update Manager GUI has been 
running for a long (for example, over night) time.

Clicking "Check" button will clear the error condition (this will prompt
for password).

Also, restarting Update Manager will clear the error condition.

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update-manager "Install Updates" button not functioning
https://bugs.launchpad.net/bugs/392073
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