I seem to have same problem, but I don't know how to apply this
solution.

I just updated 6.06 -> 6.10 -> 7.04 -> 7.10 over the pass couple of days.
This last update left me it this "/dev/md0 does not exist. dropping to a shell" 
state.

I've download a 7.10 desktop cd, and have booted off this.
The update-initramfs command fails "cannot find /lib/modules/2.6.20-16-generic"

But also it appears that this live boot does not see /dev/md0, so how
could create a new boot image on this raid.

Mark

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/dev/md0 does not exist. Dropping to a shell.
https://bugs.launchpad.net/bugs/128313
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