The /boot/grub/menu.lst on your machine reads:
# You can specify 'saved' instead of a number. In this case, the default entry
# is the entry saved with the command 'savedefault'.
(just before the 'default' line).
Happy to see you have fixed your problem
** Changed in: ubuntu
Status: New => Invalid
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Upgrade to 8.04 does not change value of 'default' boot option if inserted
kernels are before default boot option
https://bugs.launchpad.net/bugs/222660
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