I ran into the same issue on (K)ubuntu Maverick Meerkat.

I just had to disable the nbd-proxy as follows:

In the file
/var/lib/tftpboot/ltsp/i386/pxelinux.cfg/default
I added the boot option
nbd_proxy=false

Thanks to the guys on irc.freenode.net!

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nbd-proxy hangs the nbd-connection to server
https://bugs.launchpad.net/bugs/589034
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