This just annoyed me enough to figure out how to stop it. Ubuntu turns on 'use-agent' by default now:
# For Ubuntu we now use-agent by default to support more automatic
# use of GPG and S/MIME encryption by GUI programs. Depending on the
# program, users may still have to manually decide to install gnupg-agent.
Which means you see an annoying dialog anytime you need to put in a password to encrypt/decrypt.
The solution is to comment out 'use-agent' in
~/.gnupg/gpg.conf
You can also hit escape to get to the regular curses prompt.