same issue here on MAC OS X. Here is my configuration.
bigboy:platform-tools kaffein$ uname -a
Darwin bigboy.home 10.8.0 Darwin Kernel Version 10.8.0: Tue Jun  7 16:32:41 PDT 2011; root:xnu-1504.15.3~1/RELEASE_X86_64 x86_64
The Why
It is a problem with the permission settings of your ~/.android/avd folder. Since virtual device emulator settings and configurations are written in this folder, the SDK tools (avd manager in this case) has to be able to write in this directory.
The how
First, check your ~/.android/avd permissions using the ls Unix command (cd to your home directory) :
bigboy:~ kaffein$ ls -al .android/
drwxr-xr-x   5 kaffein  staff   170 Jan  5 14:35 .
drwxr-xr-x+ 53 kaffein  staff  1802 Jan  5 21:22 ..
-rw-r--r--   1 root        staff   123 Jan  5 14:08 adb_usb.ini
-rw-r--r--   1 root        staff   131 Jan  5 14:35 androidwin.cfg
drwxr-xr-x   2 root        staff    68 Jan  5 12:48 avd
the avd folder belongs to root. You can begin by changing the owner of this folder to yourself using the following command.
bigboy:~ kaffein$ cd .android/
bigboy:.android kaffein$ sudo chown kaffein:staff *
check again to see that you are now the owner of the folder using the following command :
bigboy:.android kaffein$ ls -al
total 16
drwxr-xr-x   5 kaffein  staff   170 Jan  5 14:35 .
drwxr-xr-x+ 53 kaffein  staff  1802 Jan  5 21:22 ..
-rw-r--r--   1 kaffein  staff   123 Jan  5 14:08 adb_usb.ini
-rw-r--r--   1 kaffein  staff   131 Jan  5 14:35 androidwin.cfg
drwxr-xr-x   2 kaffein  staff    68 Jan  5 12:48 avd
you should have an output like the one above (of course, kaffein should be your username)
Finally, you should change the permission settings on the avd/ folder using the following command :
bigboy:.android kaffein$ sudo chmod a+rw avd/
check that you actually changed the settings with ls -al command.
bigboy:.android kaffein$ ls -al
total 16
drwxr-xr-x   5 kaffein  staff   170 Jan  5 14:35 .
drwxr-xr-x+ 53 kaffein  staff  1802 Jan  5 21:22 ..
-rw-r--r--   1 kaffein  staff   123 Jan  5 14:08 adb_usb.ini
-rw-r--r--   1 kaffein  staff   131 Jan  5 14:35 androidwin.cfg
drwxrwxrwx   2 kaffein  staff    68 Jan  5 12:48 avd
avd is now set to 777.
Final step
From your Eclipse IDE, open the AVD manager and try to create a virtual device. Taaadaaaa!!!! Everything should work...
I hope it helped ...