I also experience this issue, on release 7.10 (gutsy ):

davide@sins:~$ dpkg -s network-manager
Package: network-manager
Status: install ok installed
[...]
Architecture: amd64
Version: 0.6.5-0ubuntu16.7.10.0


The ppp0 interface is automatically activated, thus allowing to setup a dialup connection:

davide@sins:~$ cat /etc/network/interfaces 
auto lo
iface lo inet loopback

iface ppp0 inet ppp
provider ppp0
auto ppp0


I can connect to ppp0 via Modem with the nm-applet, however I get the reported warning "NetworkManager: <WARN>  nm_system_activate_dialup(): Couldn't activate dialup device ppp0 via Modem (ppp0)". Here's an extract of my  /var/log/syslog:

Jan  5 11:58:36 sins NetworkManager: <info>  Activating dialup device ppp0 via Modem (ppp0) ... 
Jan  5 11:58:36 sins pppd[6216]: pppd 2.4.4 started by root, uid 0
Jan  5 11:58:36 sins ntpdate[6227]: can't find host ntp.ubuntu.com 
Jan  5 11:58:36 sins ntpdate[6227]: no servers can be used, exiting
Jan  5 11:58:36 sins NetworkManager: <WARN>  nm_system_activate_dialup(): Couldn't activate dialup device ppp0 via Modem (ppp0) - 6673456 
Jan  5 11:58:37 sins chat[6232]: timeout set to 60 seconds
Jan  5 11:58:37 sins chat[6232]: abort on (ERROR)
Jan  5 11:58:37 sins chat[6232]: abort on (BUSY)
Jan  5 11:58:37 sins chat[6232]: abort on (VOICE)
Jan  5 11:58:37 sins chat[6232]: abort on (NO CARRIER)
Jan  5 11:58:37 sins chat[6232]: abort on (NO DIALTONE)
Jan  5 11:58:37 sins chat[6232]: abort on (NO DIAL TONE)
Jan  5 11:58:37 sins chat[6232]: abort on (NO ANSWER)
Jan  5 11:58:37 sins chat[6232]: send (ATZ^M)
Jan  5 11:58:37 sins chat[6232]: send (AT&FH0M0^M)
Jan  5 11:58:37 sins chat[6232]: expect (OK)
Jan  5 11:58:37 sins chat[6232]: ^M
Jan  5 11:58:37 sins chat[6232]: OK
Jan  5 11:58:37 sins chat[6232]:  -- got it 
Jan  5 11:58:37 sins chat[6232]: send (ATDT*99#^M)
Jan  5 11:58:37 sins chat[6232]: timeout set to 75 seconds
Jan  5 11:58:37 sins chat[6232]: expect (CONNECT)
Jan  5 11:58:37 sins chat[6232]: ^M
Jan  5 11:58:37 sins chat[6232]: ATZ^M^M
Jan  5 11:58:37 sins chat[6232]: OK^M
Jan  5 11:58:37 sins chat[6232]: AT&FH0M0^M^M
Jan  5 11:58:37 sins chat[6232]: OK^M
Jan  5 11:58:38 sins chat[6232]: ATDT*99#^M^M
Jan  5 11:58:38 sins chat[6232]: CONNECT
Jan  5 11:58:38 sins chat[6232]:  -- got it 
Jan  5 11:58:38 sins pppd[6216]: Serial connection established.
Jan  5 11:58:38 sins pppd[6216]: Using interface ppp0
Jan  5 11:58:38 sins pppd[6216]: Connect: ppp0 <--> /dev/ttyS0
Jan  5 11:58:39 sins pppd[6216]: CHAP authentication succeeded
Jan  5 11:58:39 sins pppd[6216]: CHAP authentication succeeded
Jan  5 11:58:39 sins kernel: [  125.326408] PPP BSD Compression module registered
Jan  5 11:58:39 sins kernel: [  125.364076] PPP Deflate Compression module registered


The nw-applet shows the message "No network connection", although the ppp connection has in fact been established. 

Consequences:

- VPN connections cannot be setup (the configured profiles are grayed out, see attachment);
- Evolution remains in offline mode. It needs to be set to online mode manually, through the entry File -> Work online.

This behaviour was reported here: http://foodfight.org/log/Interweb/xs4all-umts.html - "Network Manager currently has a bug: it doesn't detect that the network connection is established, so it won't tell the desktop environment that there's a network connection, so some programs might insist on being in 'offline mode'".