I also have the issue on a base Lucid install, and there's a real issue
there, which is not fixed in Lucid at least. There are two problems:

* the qemu://session thing, already discussed above;
* the permissions on /var/lib/libvirt/*.

When you try and create a machine, the user trying to create it is the
one connected to qemu; it must be in the libvirtd group to run, so far
so good. BUT:

* qemu://session makes it so that the configuration of the VM is stored in 
$HOME/.libvirt, not in /var/lib/libvirt;
* however, images are still created in /var/lib/libvirt/images!

The image creation fails, because all directories in /var/lib/libvirt
are 755,root,root. I changed them to 770,root,libvirtd and the problem
is fixed. But that's only a workaround.

I don't know, really, where VMs should be stored in a qemu://session
thing, but I quite surmise that it shouldn't be in
/var/lib/libvirt/images to start with.

-- 
virt-manager cannot create image file
https://bugs.launchpad.net/bugs/405388
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