@Arun,

as Scott said in comment #13, you must blacklist vga16fb by placing the
line

blacklist vga16fb

in the file /etc/modprobe.d/blacklist.conf .   The cloud images do this
automatically, but since you are building your images with vmbuilder,
you must either have vmbuilder do it for you with a hook, or do it by
hand on a first boot with vnc.

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https://bugs.launchpad.net/bugs/569394

Title:
  Can't use kvm -curses with virtual or ec2 kernels

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