I had a similar problem as originally stated but worse, namely the machine 
never did boot at all. (I tried to install Ubuntu 10.4 on my Acer Aspire One 
110L. So the problem apparently is not fixed in general.) It always dropped me 
to the Grub Rescue. The interesting fact is that it has a Compact Flash (CF) to 
IDE adapter as harddisk. (I had replaced the SSD (=Super Slow Disk) on the AAO 
with a LSD (=Less Slow Disk).)
The fix proposed above by yossisynett did not work for me. Neither did anything 
else that Google came up with. After having tried all possible and impossible 
fixes, I did some serious trouble-shooting and discovered that another CF-card 
that I had installed Puppy Linux on did boot.
So my conclusion is that Grub is incapable of handling CF-to-IDE adapters well. 
Indeed, installing the Extlinux boot loader immediately gave me a fully 
functional Ubuntu 10.4 on my machine. For installing Extlinux, I followed the 
following explanations (in German):
http://wiki.ubuntuusers.de/Baustelle/Ubuntu_auf_USB-Datentr%C3%A4ger_installieren
Hope this helps others saving some hours of their lifetime.
Cheers!
St. Müller, Switzerland

-- 
grub 2 error: out of disk. failed to boot default entries. press any key to 
continue...
https://bugs.launchpad.net/bugs/477430
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