I can confirm that I had the same problem with the kernel. This was due to it 
being a vm in a xen environment which was booting from the host kernel which 
was why it was not upgraded.

After upgrading the kernel and apt to the most recent version all is
working normally again.

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https://bugs.launchpad.net/bugs/1577926

Title:
  apt-key works fine, yet apt fails with "Could not execute 'apt-key'"

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