I have now tried with Ubuntu-3.5.0-6.6, and the restart after the installation 
on the vm, stops with 
'Please remove the installation media and close the tray (if any) and press 
ENTER:' message.  With this version there was no need to alt+arrow to go to 
this screen. 

Hitting enter once make the vm restart properly.

The host machine is Precise with 3.2.0-26-generic-pae #41-Ubuntu SMP Thu Jun 14 
16:45:14 UTC 2012 i686 i686 i386 GNU/Linux
The vm is Quantal with 3.5.0.6 generic #6-Ubuntu SMP Mon July 14 19:53:07 UTC 
2012 i686 i686 i386 GNU/Linux- Created on Virtual Machine Manager using 'Local 
install media (ISO image or CDROM) option with a local iso image stored in the 
host machine

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https://bugs.launchpad.net/bugs/1027851

Title:
  Quantal desktop installation on a vm  hung on reboot.

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