After a lot of testing, I still haven't found what is causing the
problem.  The relevant host specs are:

Acer Aspire 2012wlmi
Intel Pentium M 1.5 GHz
Intel 855GME

I have resolved the issue by installing a command-line only
2.6.24-19-generic kernel system and now everything works fine.

I also found that when setting the guest OS vmware setting to something
besides Linux->Ubuntu or Linux->Other 2.6.x kernel, the system would
boot properly.  ie - when creating a guest machine, I set it to
Other->Other and the system would boot and run correclty, but
performance was terrible.

The host OS was installed from the network using the livecd instructions
from
https://help.ubuntu.com/community/Installation/LocalNet#A%20variation:%20Booting%20the%20%22Live%20CD%22%20image

So, to reiterate, the system runs fine with 2.6.24-19-generic kernel
installed from netboot hardy images on server cd with command-line only
packages and any vmware guest settings.

-- 
vmware-server crashes during guest ubuntu install
https://bugs.launchpad.net/bugs/262072
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