This bug was fixed in the package libvirt - 0.8.5-0ubuntu5

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libvirt (0.8.5-0ubuntu5) natty; urgency=low

  * Have upstart job source /etc/default/libvirt-bin.  This is only a
    temporary fix until upstart provides proper default override support
    through /etc/init/libvirt-bin.override (or any other mechanism).
    (LP: #708172)
 -- Serge Hallyn <[email protected]>   Tue, 01 Feb 2011 13:30:02 +0100

** Branch linked: lp:ubuntu/libvirt

** Changed in: libvirt (Ubuntu)
       Status: Triaged => Fix Released

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https://bugs.launchpad.net/bugs/708172

Title:
  service libvirt-bin start does not set KRB5_KTNAME as required

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