Repeated my test on an upgrade from Hardy -> Lucid on a USB Flash Drive.
This worked.  So this appears to be a Karmic -> Lucid only issue.
Continuing to investigate why /proc and /sys appear to be getting
unmounted somehow.

-- 
[MASTER] package policykit-1 0.96-1 failed to install/upgrade: 
start-stop-daemon: nothing in /proc - not mounted? when system is run from 
external card
https://bugs.launchpad.net/bugs/554718
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