I can confirm this problem on jessie (did not tested stretch yet). Before trying to fix it for stretch, I like to understand what should happen, and why the GRUB_PC/10-setup script does not work in this situation.
In my test BOOT_DEVICE was aslso set to /dev/vg1/root and BOOT_PARTITION was not set at all. Then GROOT was set to something like (lvmid/2Mf5k7ul-..........) Does anyone knows which values should be the right ones? Which device/partition should grub be written to? -- regards Thomas