I was able to reproduce basically the same symptoms, but the workaround
is slightly different. I've an amd64 with NVIDIA Corporation G92
[GeForce 9800 GX2] (rev a2). The _only_ way that this system will
display the encryption password prompt is if you boot without "splash"
in the kernel command line. I can alter which VT the password prompts
appear in by changing the vt.handoff number from 7 to 1.

If splash is enabled then vt 1 comes up completely blank. Switching to
vt 2 etc produces a single unblinking cursor.

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https://bugs.launchpad.net/bugs/942846

Title:
  encrypted install fails to boot as long as vt.handoff=7 is used

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