It is necessary to remove the check:
if [ -f "$loop_file" ]; then
Since when update-grub is run by grub-installer in a chrooted
installation, /host is not accessible and hence the above block will
always evaluate to false. The fact that finde_device > readlink fails
and defaults to /dev/hda1 is irrelevant since root_device is overidden
by the included patch.
** Changed in: wubi
Status: Fix Released => In Progress
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Update-grub does not set kopt correctly in loopinstallations
https://bugs.launchpad.net/bugs/175772
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