I am seeing the same problem on Karmic with ubuntu-vm-builder and grub
not finding the stage1 grub file.

I converted the qcow2 image created by vmbuilder to raw and then mounted
the image to inspect the grub directory.  It seems that the grub stage
files are actually in /boot/grub/i386-pc.

ubuntu-kvm/mnt/boot/
|-- System.map-2.6.31-14-generic-pae
|-- config-2.6.31-14-generic-pae
|-- grub
|   |-- default
|   |-- device.map
|   |-- grubenv
|   |-- i386-pc
|   |   |-- e2fs_stage1_5
|   |   |-- fat_stage1_5
|   |   |-- jfs_stage1_5
|   |   |-- minix_stage1_5
|   |   |-- reiserfs_stage1_5
|   |   |-- stage1
|   |   |-- stage2
|   |   |-- stage2_eltorito
|   |   `-- xfs_stage1_5
|   |-- menu.lst
|   |-- menu.lste
|   `-- menu.lst~
|-- initrd.img-2.6.31-14-generic-pae
`-- vmlinuz-2.6.31-14-generic-pae

If you copy the stage files from boot/grub you can then manually install
grub and get the KVM image to boot.

# cd ubuntu-kvm ; mkdir mnt
# qemu-img convert -O raw disk0.qcow2 disk0.img
# mount -oloop,offset=16384 -t ext3 disk0.img mnt
# cp mnt/boot/grub/i386-pc/stage* mnt/boot/grub
# grub --device-map=/dev/null
grub> device (hd0) ../disk0.img 
device (hd0) ../disk0.img 
grub> root (hd0,0)
root (hd0,0)
grub> setup (hd0)
setup (hd0)
 Checking if "/boot/grub/stage1" exists... yes
 Checking if "/boot/grub/stage2" exists... yes
 Checking if "/boot/grub/e2fs_stage1_5" exists... no
 Running "install /boot/grub/stage1 (hd0) /boot/grub/stage2 p 
/boot/grub/menu.lst "... succeeded
Done.
# qemu-img convert -O qcow2 disk0.img disk0.qcow2

-- 
VMBuilder doesn't work with grub2
https://bugs.launchpad.net/bugs/410886
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