I am facing the same issue/similar, and can recreate this at will.

Hardware: Desktop PC on AMD Phenom II X4 940 with 4GB RAM. Network connection 
is through a USB Wifi dongle Linksys WUSB54GC using a Ralink chipset (RT2500? 
http://ralink.rapla.net/). Internet connection is a 1 Mbps plan giving about 
120kbps download speed.
Kernel: 2.6.32-24-generic (x86_64)

Issue: The Internet connection works great but gets disconnected on using 
torrent, in which case the USB dongle light will go off, Internet connection 
will stop working (no dropbox, no browser activity) even though the network 
indicator is showing connected.
Some points - 
   1. Removing the dongle and pluggingt it back restores the connection.
   2. Normal net usage does not kill the net (dropbox, browser, youtube in many 
tabs, gwibber,skype, updates etc)
   3. The connection is invariably lost between 5 mins to a few hours after a 
torrent program is used (transmission or deluge)
   4. I started trying to fix this by googling the right settings for torrent - 
have changed number of connections, max download  upload speed and turning off 
DHT but the problem persists.
   5. The log file viewer indicates a problem with the USB dongle drivers 
(attached logs)
   6. I googled around and found some forums that suggest blacklising the 
kernel modules rt2x00usb and rt2x00lib
(http://translate.google.com/translate?hl=en&sl=de&u=http://forum.ubuntuusers.de/post/2373162/&ei=XQiHTJ_bOIP0tgPK78SrCg&sa=X&oi=translate&ct=result&resnum=3&ved=0CCgQ7gEwAg&prev=/search%3Fq%3Drt2x00usb%2Bvendor%2Brequest:%2BError%2B-%2BVendor%2BRequest%2B0x07%2Bfailed%2Bfor%2Boffset%2B0x308c%2Bwith%2Berror%2B-110%26hl%3Den%26sa%3DX%26prmd%3Ddf)
       
   7. Blacklisting the modules should have no effect, they are loaded by 
rt73usb anyway, however blacklisting them did alleviate the issue, even if it 
has not gone away
   8. Could not use ndiswrapper as it conflicted with rt73usb and I had no clue 
how to remove the driver, blacklisting it did not work. I'd like to avoid 
ndiswrapper anyway.



** Attachment added: "Syslog Text (Full)"
   
https://bugs.launchpad.net/ubuntu/+source/linux/+bug/362875/+attachment/1555891/+files/syslog%20sep%208.txt

-- 
rt2x00usb_vendor_request: Error - Vendor Request 0x07 failed for offset 0x308c 
with error -71.
https://bugs.launchpad.net/bugs/362875
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