Comment 3 for bug 536283

The log indicates that you've removed the grub-pc and grub-common packages. Either install them again, or (if you've switched to a different boot loader) remove the postinst_hook and postrm_hook lines from /etc/kernel-img.conf so that the kernel packaging no longer tries to run update-grub on upgrade.

This should no longer be a problem in Ubuntu 10.10, since we use a different hook mechanism which is less prone to failures of this kind. Here's the changelog entry from grub2 1.98+20100804-1:

  * Add kernel hook scripts and remove any uses of update-grub as a
    postinst_hook or postrm_hook in /etc/kernel-img.conf (closes: #554175).
    Thanks to Ben Hutchings for advice and to Harald Braumann for an early
    implementation.