For the record, root cause is:
ERROR javax.crypto.BadPaddingException: pad block corrupted
javax.crypto.BadPaddingException: pad block corrupted
        at org.bouncycastle.jce.provider.JCEBlockCipher.engineDoFinal(Unknown 
Source)
        at javax.crypto.Cipher.doFinal(Cipher.java:1708)
        at 
edu.ucsb.eucalyptus.cloud.ws.WalrusImageManager.decryptImage(WalrusImageManager.java:801)

-- 
Instances block in pending state, and don't start
https://bugs.launchpad.net/bugs/588861
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