Below are the basic steps for installing GNS3 v0.8.6 on Linux Ubuntu 12.04 ( should also work for other similar flavors) using the excellent work by claydon_dan as posted in GNS3 Forum.
This version makes things much easier in installing GNS3 and Dynamips using PPA (Personal Package Archive). Reposting the steps below.
Step 1: Add PPA to your system
sudo add-apt-repository ppa:gns3/ppa
Step 2: Update the system
sudo apt-get update
Step 3: Download and install GNS3 and Dynamips
sudo apt-get install dynamips gns3
I have created few examples including connecting GNS3 to Real equipment and to the internet as well and did not experience any problems. The Dynamips error message 206, appearing when connecting the cloud is not an issue any more.