I think I just duplicated this with the 20071026 Ubuntu desktop i386 CD.
The test setup was that I disabled external connectivity in my firewall
for the machine on which I tested this. It has LAN access, and can do
DNS queries, but cannot access the Internet otherwise. The installer got
stuck for over 30 minutes in the phase where it verifies apt sources.

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installation hangs if the computer is behind a proxy
https://bugs.launchpad.net/bugs/14599
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