I've been struggling with the same problem, and have finally come across a solution. Here's my grub session:
grub> root (hd0,0)
grub> setup (hd0)
Checking if "/boot/grub/stage1" exists... no
Checking if "/grub/stage1" exists... yes
Checking if "/grub/stage2" exists... yes
Checking if "/grub/e2fs_stage1_5" exists... yes
Running "embed /grub/e2fs_stage1_5 (hd0)"... 17 sectors are embedded.
succeeded
Running "install /grub/stage1 (hd0) (hd0)1+17 p (hd0,0)/grub/stage2 /grub/menu.lst"... succeeded
Done.
If I then take the install command that was automatically run, and run it manually before quitting, but add the [d] option, it installs properly:
install /grub/stage1
d (hd0) (hd0)1+17 p (hd0,0)/grub/stage2 /grub/menu.lst
An explanation of the [d] option can be found here:
http://www.gnu.org/software/grub/man...b.html#install
Hope this helps.