Don,

I've just tried this myself with usb-creator from Karmic using the
20091019 Moblin CD and the resulting image worked fine in KVM.

Have you checked to make sure the MD5SUM of the image you downloaded
matches?  Are you able to use the USB startup disk utility from a Karmic
live CD or system to attempt to create a USB disk again?

When you get to that login prompt try "ubuntu" for the username and hit
enter on the password prompt.  If the installer hasn't started yet,
/var/log/partman and /var/log/installer/debug wont be present, but
/var/log/syslog should be.  Attaching that may give us further clues as
to what's going on here.

Thanks!

-- 
karmic-moblin-remix usb installer does not work
https://bugs.launchpad.net/bugs/423254
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