I'm having the same problem with a fresh 10.04 server installation.  Its
on a P3 box that has an integrated SiS 620 video chipset on the
motherboard.

error: no suitable mode found
error: unknown command 'terminal'

It looks like the kernel isn't supporting the video framebuffer.

-- 
grub2 complains "error: unknown command `terminal'" if terminal_output gfxterm 
is false
https://bugs.launchpad.net/bugs/519358
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