Several reboots later and I only get this problem when I use usplash.

Interestingly, I don't get any messages about waiting while the password
prompt is 'open', even if I leave the machine alone for several minutes
without typing anything at the password prompt, whether with or without
usplash. It is only after entering the (correct) passphrase that I start
getting messages. When I enter the incorrect passphrase I just get the
passphrase prompt again, no messages about waiting until after
cryptsetup has succeeded.

So for those who hit this problem and are having trouble:

WORKAROUND

Basically disable splash.

How to do this is less obvious due to changes in grub, so step by step:

* Hold down the shift key while booting - this will take you to the grub menu.
* Press 'e' on the default option
* edit the text on the line starting 'kernel' (the second last line in a 
default setup) and delete the word 'splash' on that line
* hit Ctrl-X to boot with those options.

-- 
mountall 0.2.5 and cryptsetup fail to boot when using usplash
https://bugs.launchpad.net/bugs/456274
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