Using the information in this post 
http://ubuntuforums.org/showthread.php?t=1195275 I have been able to get more 
information about this bug
.
I reinstalled 10.04.1 LTS and tried this  
http://sourceforge.net/apps/mediawiki/bootinfoscript/index.php?title=Boot_Problems:write
 
This isn't the problem because the  grub.cfg no longer contains those lines
.
So I tried removing the "search --no-floppy" from grub-mkconfig_lib as per  
http://sourceforge.net/apps/mediawiki/bootinfoscript/index.php?title=Boot_Problems:search

That didn't work. I got the following results:

On a "restart" the system will boot. 
On a "Cold Boot" the system still gives the error: "out of disk" message

I am left thinking that the code for a "restart" follows a different path than 
the code for a "cold boot", hence the reason a "restart" works. The other 
option is that the hard drive has not reached full speed by the time a read is 
required during a "cold boot"
.
Either way this is a major bug.

This install was on a system using just SATA drives. I have installed
10.04.1 LTS on a system using IDE drives. Maybe that is another clue to
finding out what is causing this bug.

I can not move forward with 10.04.1 LTS until this bug is fixed. Not
what one expects from a LTS release.

-- 
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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