I have the same problem using Kubuntu Karmic alternate CD.  I can
encrypt a partition during install, but on reboot at the prompt for
password for encrypted partition, entering password and enter does
nothing.  Pressing enter a second time results in failure.

I tried enter first, then password, then enter.  Nothing.  Enter again, 
rejection of the correct password.
Next attempt requires enter key eight times before rejection.  Something is 
seriously wrong with this.

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Upgrade to Karmic completely broke password prompt for cryptdisks at boot
https://bugs.launchpad.net/bugs/475293
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