I have the same problem on the following hardware:

01:00.0 VGA compatible controller: ATI Technologies Inc RV350 AP [Radeon
9600]

[EMAIL PROTECTED]:~$ sudo update-grub
Searching for GRUB installation directory ... found: /boot/grub
Testing for an existing GRUB menu.list file ... found: /boot/grub/menu.lst
Searching for splash image ... found but preserving previous setting: 
splashimage=(hd0,0)/boot/grub/default-splash.xpm.gz
Found kernel: /boot/vmlinuz-2.6.17-10-generic
Found kernel: /boot/memtest86+.bin
Updating /boot/grub/menu.lst ... done

-- 
No usplash at all
https://launchpad.net/bugs/66607

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