Grub2 entries to boot Wubi incorrect... "Error: file not found, Press any key to continue" at boot

I reinstalled the same version of Wubi and checked grub.cfg. The lupin entry looks like this:
### BEGIN /etc/grub.d/10_lupin ###
menuentry "Ubuntu, Linux 2.6.38-6-generic" {
 insmod part_msdos
 insmod ntfs
 set root='(/dev/sda,msdos3)'
 search --no-floppy --fs-uuid --set=root 8654915254914639
 loopback loop0 /ubuntu/disks/root.disk
 set root=(loop0)
 linux /boot/vmlinuz-2.6.38-6-generic root=UUID=8654915254914639 loop=/ubuntu/disks/root.disk ro quiet splash
 initrd /boot/initrd.img-2.6.38-6-generic
}
Apart from changing the target partition it shows that the grub.cfg changed after the install - the original entry looks like the traditional wubi entry, but then running "sudo update-grub" changes it to this:
### BEGIN /etc/grub.d/10_lupin ###
menuentry "Ubuntu, Linux 2.6.38-6-generic" {
 insmod ext2
 set root='(/dev/loop0)'
 search --no-floppy --fs-uuid --set=root b4c80465-f6f6-4e88-a1dc-0321acfe292f
 loopback loop0 /ubuntu/disks/root.disk
 set root=(loop0)
 linux /boot/vmlinuz-2.6.38-6-generic root=UUID=8654915254914639 loop=/ubuntu/disks/root.disk ro quiet splash
 initrd /boot/initrd.img-2.6.38-6-generic
}

So I don't think this is a lupin script issue, but rather a grub2 issue.

The problem appears to be that 'grub-probe --target=device /host/ubuntu/disks/root.disk' returns information for / rather than /host.

I've sent a patch upstream and committed it to Debian. It'll be in my next upload. Thanks for your report.

This bug was fixed in the package grub2 - 1.99~rc1-5ubuntu1

---------------
grub2 (1.99~rc1-5ubuntu1) natty; urgency=low

  * Resynchronise with Debian. Remaining changes:
    - Adjust for default Ubuntu boot options ("quiet splash").
    - Default to hiding the menu; holding down Shift at boot will show it.
    - Set a monochromatic theme and an aubergine background for Ubuntu.
    - Apply Ubuntu GRUB Legacy changes to legacy update-grub script: title,
      recovery mode, quiet option, tweak how memtest86+ is displayed, and
      use UUIDs where appropriate.
    - Fix backslash-escaping in merge_debconf_into_conf.
    - Remove "GNU/Linux" from default distributor string.
    - Add crashkernel option.
    - Bypass menu unless other OSes are installed or Shift is pressed.
    - Allow Shift to interrupt 'sleep --interruptible'.
    - Reduce visual clutter in normal mode.
    - Remove verbose messages printed before reading configuration.
    - Suppress kernel/initrd progress messages, except in recovery mode.
    - Handle filesystems loop-mounted on file images.
    - Ignore devices loop-mounted from files in Linux grub.d scripts.
    - Show the boot menu if the previous boot failed.
    - Don't generate device.map during grub-install or grub-mkconfig.
    - Adjust upgrade version checks for Ubuntu.
    - Suppress "GRUB loading" message unless Shift is held down.
    - Adjust versions of grub-doc and grub-legacy-doc conflicts.
    - Fix LVM/RAID probing in the absence of /boot/grub/device.map.
    - Look for .mo files in /usr/share/locale-langpack first.
    - Make sure GRUB_TIMEOUT isn't quoted unnecessarily.
    - Build-depend on qemu-kvm rather than qemu-system for grub-pc tests.
    - Use qemu rather than qemu-system-i386.
    - Add a grub-rescue-efi-amd64 package.
    - On Wubi, don't ask for an install device, but just update wubildr
      using the diverted grub-install.
    - Enable lua from grub-extras.
    - Incorporate the bitop library into lua.
    - Add enum_pci function to grub module in lua.
    - Check hardware support before using gfxpayload=keep.
    - Build part_msdos and vfat into EFI boot images.
    - Put second and subsequent Linux menu entries in a submenu.
    - Preferred resolution detection for VBE.
    - Set vt.handoff=7 for smooth handoff to kernel graphical mode.
    - Don't ask where to install if upgrading and core.img doesn't exist.
    - Drop the default priority of grub2/linux_cmdline to medium.
    - Build with gcc-4.5 on ppc64.
    - Add apport hook for ProblemType = 'Package'.

grub2 (1.99~rc1-5) unstable; urgency=low

  * Update debian/legacy/update-grub to the version from grub 0.97-65.
  * Mark binary packages as Multi-Arch: foreign (for example, an amd64
    kernel installed on an i386 system could use the native architecture's
    GRUB).
  * Rewrite find_root_device_from_mountinfo to cope with move-mounts
    (LP: #738345).

  [ Updated translations ]
  * Esperanto (Felipe Castro). Closes: #606524
  * Thai (Theppitak Karoonboonyanan). Closes: #607706
 -- Colin Watson <email address hidden> Wed, 23 Mar 2011 23:51:04 +0000

Thanks for the quick fix. I can confirm that it is working. It wasn't in my daily-live image, but after running the latest updates, it was fixed (and grub-install -v shows 1.99~rc1-5ubuntu1)