Sorry for adding this post months later, but I ran into this same issue just yesterday and I thought that someone else might want to hear about this experience.
I'm unsure if VMWare has fixed this issue at this point and I would definately like to see this fixed, but with the help of this post and some other references I found I was able to work around this issue.
I did follow most of the steps above (posted by eschwab) but to be clear, this is what I did inside vCenter to finish the conversion:
Performed the conversion of Ubuntu 9.10 with Vmware converter 4.0.1 (which fails at 97% - leaving the system in an off state)
Right-clicked the converted guest and chose "Edit Settings"
Clicked on "CD/DVD Drive 1"
Clicked on the "Datastore ISO File" option and browsed my datastore to select the ubuntu 9.10 O/S ISO file*
Clicked on the "Connect at power on" option
Clicked on the options tab and then "Boot options"
Checked the box in the "Force BIOS Setup" area
Clicked on OK
Right-clicked the converted host again and chose "Power" and then the "Power on" option to start the system.
I selected the converted host and clicked on the console tab.
The BIOS setup for the guest comes up and I went to the boot area by hitting the right arrow key a couple times.
By using the down arrow key I selected "Hard drive" and pressed the minus key to move it down and then moved the selection up using the up arrow key to select the removable devices listing and pressed the minus key (this left the CD-Rom listing at the top).
I pressed the F10 key and pressed the Enter key (with the "Yes" option selected) to save the changes and exit.
The ubuntu CD booted and I was presented with some options for the language, I opted for english and pressed Enter.
I selected the "Rescue a broken system"
It asked for a language selection again and again I opted for English and hit the enter key
I asked for my country, I selected United States and pressed enter
I did not opt to have it auto detect my keyboard, so I pressed enter on this and the next couple screens regarding the keyboard.
At this point it asked for a hostname (which I don't think really matters because it doesn't save this anywhere) so I pressed enter on what it already had there.
It asked for my timezone, so I gave it my timezone and hit enter.
I selected /dev/sda1 to use as my root file system and pressed enter.
It presents a set of options, one of which was to reinstall the grub bootloader, which I did.
One of the other options presented is to start a shell (its the top option) which I did.
At the prompt I typed "blkid" and it gave me the UUID of the /dev/sda1 disk (there was not a UUID for the swap disk). I made note of the UUID for /dev/sda1
I edited the /etc/fstab by typing "nano /etc/fstab"
I changed the line for the root file system which starts with "UUID=" (and also has "/" in it) and put in the new UUID (replacing the old one) and then saved it.**
I edited the /boot/grub/grub.cfg and replaced all of the old UUIDs in there with the new UUID (there were 5 places where the old UUID was present).I of course saved my changes.**
I then ran "rm /etc/udev/rules.d/70-persistent-net.rules" to remove what the system thought the network adapters were and force it to recreate them essentially.
I turned the VM guest off, disconnected the ubuntu ISO cd and then turned it back on and it booted up without issue.
*Note: I had uploaded the ISO for Ubuntu 9.10 onto my vmware esxi host data store to connect the cd/dvd drive to it.
**Note: other ubuntu installs may have different disk depending on the setup, there could be multiple UUIDs that need to be accounted for and the grub bootloader could have multiple new UUIDs that need to be used to replace old ones.
Keep in mind that there are many different ways to skin this cat (you can do this same set of operations with other methods), but this is what I did and it worked for me. Hope this helps.
