For now, a temporary fix is to put the true-crypt recovery disk in the /boot 
and boot the ISO. 
http://michael-prokop.at/blog/2009/05/25/boot-an-iso-via-grub2/
NOT AN IDEAL solution, but will work for now.

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Grub2 doesn't chainload truecrypt loader correctly
https://bugs.launchpad.net/bugs/484102
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