@James, the following upstart job that you suggested fixes the issue on Lucid. Would that be possible to have it include in the next update ? Thanks.
# procps - set sysctls from /etc/sysctl.conf
# This task sets kernel sysctl variables from /etc/sysctl.conf and
description "set sysctls from /etc/sysctl.conf"
start on virtual-filesystems or stopped networking
cat /etc/sysctl.d/*.conf /etc/sysctl.conf | sysctl -p -