I had the same issue and I was able to solve it by partitioning it
manually and putting /boot as first partition. I could not use the
'search' deletion trick because with lvm+encryption it doesn't even
reach the grub menu (but I had the same error message as in this bug
report when installing without lvm or encryption).

Note that on my old 80GB disk everything was fine. Problems only arose
when I tried installing on a new 320GB disk.

-- 
Grub 2 problem, error: no such device
https://bugs.launchpad.net/bugs/403408
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