Hello,

we had the same problem in our company and I found a solution for this.
In ESXi 4.1 vSphere Client choose the VM Ware-Machine which starts with the 
"segmentation fault"
and go to the machine settings.
There you have to change the "host operating system" from "Ubuntu 32 bit" to 
"Another"
"Version 32 Bit".

After that run your Machine and start with the dist-upgrade.
Following the finished update reboot your system and it should work now.

-- 
Boot failure after upgrading kernel to 2.6.32-25-generic
https://bugs.launchpad.net/bugs/659422
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