Yes, thats the same I experienced. I created a Live-CD, based on 8.10.
In the main menu System -> Administration there is the option to create
a USB startup disk which I did (8 GB). Then I performed the an update
with the update manager, it ended with the described error message.

-- 
package linux-image-2.6.27-7-generic 2.6.27-7.16 failed to install/upgrade: 
subprocess post-installation script returned error exit status 17
https://bugs.launchpad.net/bugs/305817
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