You asked earlier if there were any guidelines for seeing Grub installed. The Grub loader is part of the installation with the live version. In fact a full page of "how tos" for 7.10 can be looked over at
http://www.funnestra.org/ubuntu/gutsy/
A Linux boot loader would still be needed like Grub, Lilo, DMRaid, etc. in order to see distro run. With the live version you will have to specify where you want Grub to go after defining which partitions will see a mounting point. The "/" chioce from the dropdown list would be set for the ext3 root partition where the ubuntu system files are located once installed.
The prompt for Grub is the last stage before the installer goes to work at formatting or in the case of a reinstall reformatting the root and swap partitions. The simple (HD0,1) or default on a one drive system will see Grub entries made in the mbr even if you change the (HD0,1) to (HD0,2) if the root is the second partition on the drive.
By simply leaving things at the default (HD0) you saw Grub installed but ran into the other error instead likely from not correctly defining the root partition correctly or something didn't fully copy to the drive during the installation. I've seen that with other distros like Fedora and Mandriva where it takes a few installs to finally see working results.