"Padding is invalid and cannot be removed" using AesManaged

The trick is to use MemoryStream.ToArray(). I also changed your code so that it uses the CryptoStream to Write, in both encrypting and decrypting. And you don't need to call CryptoStream.FlushFinalBlock() explicitly, because you have it in a using() statement, and that flush will happen on Dispose(). The following works for me.

byte[] rawPlaintext = System.Text.Encoding.Unicode.GetBytes("This is all clear now!");

using (Aes aes = new AesManaged())
{
    aes.Padding = PaddingMode.PKCS7;
    aes.KeySize = 128;          // in bits
    aes.Key = new byte[128/8];  // 16 bytes for 128 bit encryption
    aes.IV = new byte[128/8];   // AES needs a 16-byte IV
    // Should set Key and IV here.  Good approach: derive them from 
    // a password via Cryptography.Rfc2898DeriveBytes 
    byte[] cipherText= null;
    byte[] plainText= null;

    using (MemoryStream ms = new MemoryStream())
    {
        using (CryptoStream cs = new CryptoStream(ms, aes.CreateEncryptor(), CryptoStreamMode.Write))
        {
            cs.Write(rawPlaintext, 0, rawPlaintext.Length);
        }

        cipherText= ms.ToArray();
    }


    using (MemoryStream ms = new MemoryStream())
    {
        using (CryptoStream cs = new CryptoStream(ms, aes.CreateDecryptor(), CryptoStreamMode.Write))
        {
            cs.Write(cipherText, 0, cipherText.Length);
        }

        plainText = ms.ToArray();
    }
    string s = System.Text.Encoding.Unicode.GetString(plainText);
    Console.WriteLine(s);
}

Also, I guess you know you will want to explicitly set the Mode of the AesManaged instance, and use System.Security.Cryptography.Rfc2898DeriveBytes to derive the Key and IV from a password and salt.

see also:
- AesManaged

This exception can be caused by a mismatch of any one of a number of encryption parameters.

I used the Security.Cryptography.Debug interface to trace all parameters used in the encrypt/decrypt methods.

Finally I found out that my problem was that I set the KeySize property after setting the Key causing the class to regenerate a random key and not using the key that I was initially set up.