Comment 1 for bug 673438

That sounds like you were running update-grub from a directory that had been removed. Try making sure that the directory exists first (e.g. run 'cd $PWD', which will fail in much the same kind of way if that isn't the case).

The package you probably have installed is 'grub-pc'. grub2 is a metapackage, and you don't have to have it installed.