I can confirm this issues.  In my particular case I found out what the
problem was and fixed it.  Perhaps my problem is only one way to
reproduce this bug, but in any event...here's the issue/fix:

The hard drive UUID in my GRUB menu.lst was wrong.  I had swapped out my
hard drive when my machine was running Gutsy.  I had fixed the UUID in
/etc/fstab (you have to or you can't login).  However I never changed
the UUID in /boot/grub/menu.lst and when I upgraded to Hardy I used the
new "merge" capability to get my new menu.lst file.

Apparently Gutsy didn't care the UUID was wrong, but Hardy does.  I
booted into windows, copied the UUID from fstab and pasted it into
menu.lst I now I am swimming in 8.04 goodness.

-- 
hardy upgrade: /dev/disk/by-uuid non existant at boot; dropping to a shell 
(with "386" kernel)
https://bugs.launchpad.net/bugs/213884
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