Anish_D here is the full details of my scenario:
I have two hard drives, /dev/sda (has Windows and Hardy) and /dev/sdb (empty), 
I did a fresh install of a daily build of Karmic (27th of Oct.). During setup I 
have been prompted to install GRUB and I hit OK, apparently it has installed 
GRUB2 on /dev/sda (on top of legacy grub of Hardy) then the described above 
issue came up. I don't know is this issue because of a bug in GRUB2 or because 
it has been installed on top of legacy grub.

Later on, I did a fresh install of the final release of Karmic, but this
time I choosed to install grub on /dev/sdb -in this case it is (hd1)-
the issue didn't appear, GRUB menu loaded just fine. that's why I marked
the question as fix-released

Here is how I recovered from the first situation:
- restore Windows XP mbr using MBRFIX utility (freeware) 
http://www.sysint.no/products/Download/tabid/536/language/nb-NO/Default.aspx
- Install legacy grub using LiveCD of Hardy (or later but not Karmic) but 
mounting Hardy's partition (/media/hardy) and then in terminal - In terminal do 
"sudo grub-install (hd0) --root-directory=/media/hardy" 
- reboot , now I got back my old grub list

Please refer to grub wiki page for more info
http://wiki.ubuntu.com/grub, and let me know if you had more problems

-- 
Grub takes along time to load the list and the kernel
https://bugs.launchpad.net/bugs/462241
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