So I installed a fresh quantal-amd64 (20121004) and then
             - sudo apt-get install kvm
             - Install Virtual Machine Manager from the Software Center
            -  Add the user to the libvirtd group
            - Logout and login back
            - Copy a quantal iso to the desktop
            - Then follow the steps in comment #6

And the problem occurred despite there is no virtualbox installed in
this system. The logs  are attached.

That include, 
         lsmod 
         dmesg when the issue occurred
         syslog
        /var/log/libvirt/qemu/*.log
        and other command outputs requested earlier
     

** Attachment added: "new_logs.tar.gz"
   
https://bugs.launchpad.net/ubuntu/+source/libvirt/+bug/1057024/+attachment/3375213/+files/new_logs.tar.gz

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https://bugs.launchpad.net/bugs/1057024

Title:
  internal error Process exited while reading console log output: char
  device redirected to /dev/pts/1 error when creating a vm

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