I've encountered the same problem with a similar setup using both
"Ubuntu Live CD 6.5.08" and "Ubuntu Live CD 8.04.1".

planned installation:
WinXP on first IDE, partition 1 (hd0,0)
Ubuntu on second IDE, partition 1 (hd1,0)
/home to be on second IDE, partition 2 (hd1,1)

WinXP already installed, the Ubuntu partition already existed from an
old installation.

Near the end of the installation (not sure if there was an error message, 
watched it from a few meters away) the installation stopped and dropped me to 
the LiveCD-Interface (I had chosen "Install Ubuntu" upon the boot screen).
On the target partition under /boot there was no subdirectory "grub" and no 
initrd.img - Files, the kernel images where there, however (possibly copied 
from the LiveCD).

My quick fix (as root):
    grub-install --recheck --root-directory=/target /dev/sda
    chroot /target
    apt-get install linux-image-2.6.24-19-generic
    update-grub
    grub
(within the grub shell:) 
        root (hd1,0)
        setup (hd0)
        quit
   exit
   reboot

I'm not sure whether the last invocation of grub is necessary, or if 
grub-install already set that up.
    
I'd be happy to provide further detail, if necessary.

Cheers,
Tobi-Wan

-- 
Both Ubuntu & Kubuntu 7.10 Live CD installations fail at "install grub"
https://bugs.launchpad.net/bugs/177388
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