When you key in the password and hit enter, the mouse pointer changes to
busy for about 10-15 seconds.

This is a new issue.

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You received this bug notification because you are a member of Desktop
Packages, which is subscribed to gnome-keyring in Ubuntu.
https://bugs.launchpad.net/bugs/702204

Title:
  USB key encrypted password setting not sticky

Status in “gnome-keyring” package in Ubuntu:
  Confirmed

Bug description:
  In Ubuntu 10.04, I formatted and encrypted a USB key with the Disk
  Utility 2.30.1 GUI.  When I insert this USB key into 10.04 and set the
  option Forget password immediately, it is remembered thereafter for
  all future uses.

  In Ubuntu 10.10, upon inserting the above key formatted and encrypted
  in 10.04, this option is NOT remembered.  You always get the default:
  Remember password until you logout.  This could be a potential
  security vulnerability.

  ProblemType: Bug
  DistroRelease: Ubuntu 10.10
  Package: gnome (not installed)
  ProcVersionSignature: Ubuntu 2.6.35-24.42-generic-pae 2.6.35.8
  Uname: Linux 2.6.35-24-generic-pae i686
  Architecture: i386
  Date: Wed Jan 12 20:33:34 2011
  InstallationMedia: Ubuntu 10.10 "Maverick Meerkat" - Release i386 (20101007)
  ProcEnviron:
   LANG=en_US.utf8
   SHELL=/bin/bash
  SourcePackage: meta-gnome2

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