I searched a little & found out that the natty version is 0.8.4 and cannot be updated to 1.2.0 by Robert Arkenin's command

To upgrade you should consider adding the ppa by the following commands

sudo -s  

nginx=stable # use nginx=development for latest development version  

add-apt-repository ppa:nginx/$nginx  

apt-get update   

apt-get install nginx  

If you get an error about add-apt-repository not existing, you can try this

sudo -s    

nginx=stable # use nginx=development for latest development version  

echo "deb http://ppa.launchpad.net/nginx/$nginx/ubuntu natty main" > /etc/apt/sources.list.d/nginx-$nginx-lucid.list  

apt-key adv --keyserver keyserver.ubuntu.com --recv-keys C300EE8C  

apt-get update   

apt-get install nginx  

Note The 3rd and 4th line is one command only

For more details refer Nignx wiki

If you are getting this error

W: Failed to fetch ppa.launchpad.net/nginx//ubuntu/dists/lucid/main/binary-i386/… 404 Not Found E: Some index files failed to download. They have been ignored, or old ones used instead

Do this

sudo nano '/etc/apt/sources.list.d/nginx-stable-lucid.list'

And then change the contents of the file to

deb http://ppa.launchpad.net/nginx/stable/ubuntu natty main

Something to learn

Actually if you see in the error this part "ppa.launchpad.net/nginx//ubuntu/dists/" should actually be "ppa.launchpad.net/nginx/stable/ubuntu/dists/" . that is the error

and sorry for making you add the lucid ppa the first tme.