Comment 105 for bug 930447

I've also made a new USB stick, using grub2 and loopbacking the ISO.

Here is what I did to an empty formatted 2GB USB stick using the LiveDVD iso (liveCD was same result) and mounted at /mnt.

grub-install --no-floppy --root-directory=/mnt /dev/sdb

grub-mkconfig > /mnt/boot/grub/grub.cfg

Replace all menuentries with the following one.

menuentry "TITLE" {
  iso_path=/ubuntu-12.04-dvd-i386.iso
  export iso_path
  search --set --file $iso_path
  loopback loop $iso_path
  root=(loop)
  configfile /grub/loopback.cfg
  loopback --delete loop
}

Not sure if i copied loopback.cfg into the grub dir, or if it reads it directly from the iso, but i belive it does read it directly from the iso.

Boot.

This boots the iso, as one would expect, except for using syslinux. So the kernel and initrd from the iso are used, the disk is booted and the os installed.

So yes, this looks very much like a bug and should be re-opened/fixed.
P.S. I did not try burning the iso to disk, I used the usbcreator and grub only.

So at the moment, I'm quite happy to be running gnome-session-fallback (hate unity) on stock 12.04 (for now) WITH!! PAE kernel.