I have exactly the same problem as OP with Karmic Koala.
Here is the solution I came across after some googling:
Problem solved:
The work around is following (thanks to <slangasek>)
(re)Start computer
If you have grub2 installed, you need to hold down the shift key while booting. If you have grub1 installed, you need to hit escape.
Now you can select the older kernel version from the grub menu
The system will boot normally.
Now open a console and run root command:
sudo update-initramfs -u
that will regenerate the initramfs for the newest kernel,
and after reboot all will work in the newest kernel also.
from https://bugs.launchpad.net/ubuntu/ka...pt/+bug/453678
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