It happened again with 60 updates that showed up in the update notifier.
I selected show updates, then clicked on install updates, I was prompted for my 
password, the update-manager went gray, after a minute everything became normal 
again but the 60 updates weren't installed, so I clicked on install updates 
again, but after 5-6 minutes got the error in the attached image.
After this I ran as root:
apt-get update
apt-get upgrade
apt-get dist-upgrade
and all the updates got installed.

So concluding I can only install updates with apt-get and not with
update-manager.

** Attachment added: "error"
   
https://bugs.launchpad.net/ubuntu/+source/update-manager/+bug/899648/+attachment/2622196/+files/Screenshot%20at%202011-12-06%2021%3A38%3A19.png

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https://bugs.launchpad.net/bugs/899648

Title:
  Update manager does not install downloaded updates

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