This issue has been reported to the Google Sites team.
The underlying issue is that the copy Site mechanism (which is used when creating a Site using a template) is not working. The Google engineers are aware that this is a big issue and are working hard to fix.
For creating a new Site, the workaround is to use the blank template.
'Star' this issue http://code.google.com/p/google-sites-issues/issues/detail?id=93 to be notified of updates