Quota format not supported in kernel
There's a bug filled into launchpad which describes and solves this problem.
In summary, the quota module (and others) was removed from the virtual kernel. If you are in a Virtual Machine or aws-EC2 this should be your problem.
The solution
On Oneiric and Precise install linux-image-extra-virtual package.
On old versions the modules should be already patched into kernel (just update your system).
After that run modprobe quota_v2 and modprobe quota_v1 in order to get ready to run quotas. Also remember to put the modules on /etc/modules.
Run your quotaon command as usual.