I have had the exact same problem, altought it does not always occur.
Sometimes install updates completes without a hitch.

sudo apt-get update is the best workaround I have found.

I am on a 933 MHz PIIIM
265 MB RAM
i830MG chip set

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[hardy] update-manager freezes after clicking on install updates
https://bugs.launchpad.net/bugs/231565
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