Comment 5 for bug 450260

By changing grub-mkconfig, update-grub no longer fails and I can produce a valid grub.cfg. However, grub still fails at boot with "Unknown Filesystem" in up-to-date ubuntu karmic and leaves you at the rescue prompt.

However, I can boot to a root btrfs filesystem.

My setup:
/dev/sda1 is /boot (ext2)
/dev/sda2 is / (btrfs)
Rebuild your initrd after adding btrfs, libcrc32c, crc32c, and zlib_deflate /etc/initramfs-tools/modules.

The grub rescue commands go something like this:
set prefix=(hd0,1)/grub
insmod linux
linux (hd0,1)/vmlinuz-2.6.... rootfstype=btrfs root=/dev/sda2 ro
initrd (hd0,1)/initrd-2.6....

Since I don't boot so often, I'm happy to have this working.