Vi - insert mode doesn't work in Ubuntu 12.10
Installing VIM will probably solve that issue
sudo aptitude install vim
it actually has to work though, it might be that compatibility mode is on therefore you will be in the insert mode but VI won't tell you.
Either way using vim is recommended, its basically V i IM proved.
Its not that insert mode doesnt work. But the vi editor you are using is the older version and is different to use than our usual editors. Get updated version of vi editor by-
sudo apt-get install vim