I can confirm this bug.
Looks to me like it only reads the first 32-bytes of the config, then dies.
Running the same udhcpd package as Marco, but the kernel in my case is 2.6.35-22-generic-pae #35-Ubuntu SMP Sat Oct 16 22:16:51 UTC 2010 i686 GNU/Linux
I can confirm this bug.
Looks to me like it only reads the first 32-bytes of the config, then dies.
Running the same udhcpd package as Marco, but the kernel in my case is 2.6.35- 22-generic- pae #35-Ubuntu SMP Sat Oct 16 22:16:51 UTC 2010 i686 GNU/Linux