Missing bundle property on entity of type node. in entity_extract_ids()

After upgrading to D7.8, I got this error

EntityMalformedException: Missing bundle property on entity of type node. in entity_extract_ids() (line 7390 of /drupal/path/includes/common.inc).

Here is what I have done so far in trying to debug this issue:
1. remove all existing node reference fields - the error disappears
2. create new node reference field - the error does not show
3. readdd the node reference field i removed in #1 - the error appears
4. checked the field_config and field_config_instacne for any difference in the field settings. I tried to duplicate whatever the field settings in #2 to #1 but still the error displays
5. in common.inc, I dsm() the $entity and for reference fields, that variable is empty. I cannot track where in the node_reference module is responsible for that

media module had this error as well but they were able to fix it. I could not use relate their fix to this module though. I could hack common.inc but this is only for short term solution. I could just remove and recreate the reference fields but I have another site that is using the reference field and it already contains live data so replacing the field is not a good solution for me. I hope to fix whatever issue happens on the existing node_reference field. Hope anyone can assist me.

thanks!