I am having this same exact problem with Karmic Alpha 6 (daily, actually).  I 
have my install on an LVM2, so the desktop live cd is not an option. My boot 
partition is not on the LVM, however.
 I can try to install it on any partition, and I still get the same, identical 
error. It also fails when I try to use grub, and not grub2 option.  I'll report 
back when I find a work-around.  I've deleted the boot partitions and 
re-created them a dozen times.  I have the problem whether I use ext2, ext3, or 
ext4.

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The installation of 'grub-pc' in /target/ failed.
https://bugs.launchpad.net/bugs/407767
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