Tested this on a fresh hardy server. I can confirm that the fix works.

Created two kqemu-accelerated instances in libvirt. Without the version
from proposed packages between the two instances are routed through the
host; with the version from proposed, they are now send directly. Tested
pinging both the host and external sites from the instances, and can
confirm that this also still works as expected.

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[Hardy] overzealous masquerading affects vm to vm traffic
https://bugs.launchpad.net/bugs/227837
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