I have the same problem as well on Ubuntu 10.10. Downgrading libfuse2
from 2.8.4-1ubuntu1.3 to 2.8.4-1ubuntu1 worked. Tell me if you need any
more information.

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https://bugs.launchpad.net/bugs/727220

Title:
  Command "fuse" returned error 1 (with TrueCrypt)

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