Comment 18 for bug 685017

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Bryce Harrington (bryce) wrote : Re: Jockey should warn on insufficient disk space in LiveCD environment, else get error "package nvidia-current 260.19.21-0ubuntu1 failed to install/upgrade: subprocess installed post-installation script returned error exit status 1"

@Pedro, I believe that casper can only handle a 4G filesystem max (FAT limitation?) so even though it is 8Gb total the live environment can't address the upper 5-8G. So since your storage was set so large, there wasn't space to write the kernel.

Or something like that. Try reducing the size of your storage to 2 or 3G. Or maybe manually partition the 8G drive into smaller chunks.