Confirmed on Ubuntu 7.10 release. Steps to reproduce:

1. Boot the alternate installer CD
2. Select manual partitioning
3. Mark a partition for use as "physical volume for encryption"
4. Change encryption key from "passphrase" to "random key"
5. Try to configure the encrypted volumes
6. Watch it dying

-- 
installer hangs with encryption and random password
https://bugs.launchpad.net/bugs/148560
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