This bug was fixed in the package upstart - 1.3-0ubuntu10

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upstart (1.3-0ubuntu10) oneiric; urgency=low

  [ Clint Byrum ]
  * debian/conf/failsafe.conf: do delay as script, not pre-start, so
    that the messages/delays are stopped on runlevel immediately. emit
    as an event, failsafe-boot, to provide finer grained control.
    (LP: #863864)
  * conf/rc-sysinit.conf: change from 'started failsafe' to 'failsafe-boot'
    to accomodate changes to failsafe.conf.

  [ Steve Langasek ]
  * Document device-not-ready in upstart-events(7).  LP: #805510.
  * Document desktop-shutdown in upstart-events(7).  LP: #854329.
  * Mention lightdm in the list of example DMs in upstart-events(7), since
    it's now the default...
 -- Steve Langasek <[email protected]>   Mon, 03 Oct 2011 18:37:04 -0700

** Changed in: upstart (Ubuntu)
       Status: Fix Committed => Fix Released

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https://bugs.launchpad.net/bugs/863864

Title:
  /etc/init/failsafe.conf doesn't actually stop on runlevel

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