Certainly not the case with me.  The root=/dev/sdc1 on the linux line overrides 
whatever the search UUID did.  I just did a fresh install from a 2G usb stick 
created on a Maverick system with the normal desktop iso, to a 4G new pqi 
stick.  I captured the grub.cfg (bad), fstab (OK), and the /var/log files in 
case you needed them.  The first boot attempt fell into BusyBox after about a 
minute with the following error:
Gave up waiting for  root device.  Common problems:
-Boot args (cat /proc/cmdline)
  -check rootdelay= (did the system wait long enough?)
  -check root= (did the system wait for the right device?)   <<<<<<NO IT DIDN'T
-Missing modules (cat /proc/modules; ls /dev
ALERT! /dev/sdc1 does not exist - Dropping to a shell
BusyBox v1.15.3 (ubuntu 1:1.15.3-1ubuntu5) built-in shell (ash)
Enter 'help' for a list of built-in commands
(initramfs)_

cat /proc/cmdline gives:
BOOT_IMAGE=/boot/vmlinuz-2.6.35-22-generic root=/dev/sdc1 ro quiet splash

The modules were:
usb_storage firewire_ohci, firesire_core, pata_amd, forcedeth, sdhci_pci, 
ac_itu_t, sdhci, sata_nv, led_class, ssb

The /dev directory contained sg0, sda, sda1, sda2, sda3 (the Windows disk), 
sg1, sdb, sdb1 (the 4G stick failing to boot)
and no sdc.

I select manual partition selection, select the sdc1, format an ext2 fs,
no swap, the grub boot goes to the 4G stick on sdc (default after I
select the sdc disk).  The only disks shown are sda( the windows disk),
and sdc(the target).  sdb is the 2G install usb, and correctly is not a
choice.

The original grub.cfg file created on the target, before any boot attempt is:
#
# DO NOT EDIT THIS FILE
#
# It is automatically generated by grub-mkconfig using templates
# from /etc/grub.d and settings from /etc/default/grub
#

### BEGIN /etc/grub.d/00_header ###
if [ -s $prefix/grubenv ]; then
  set have_grubenv=true
  load_env
fi
set default="0"
if [ "${prev_saved_entry}" ]; then
  set saved_entry="${prev_saved_entry}"
  save_env saved_entry
  set prev_saved_entry=
  save_env prev_saved_entry
  set boot_once=true
fi

function savedefault {
  if [ -z "${boot_once}" ]; then
    saved_entry="${chosen}"
    save_env saved_entry
  fi
}

function recordfail {
  set recordfail=1
  if [ -n "${have_grubenv}" ]; then if [ -z "${boot_once}" ]; then save_env 
recordfail; fi; fi
}

function load_video {
  insmod vbe
  insmod vga
}

insmod part_msdos
insmod ext2
set root='(hd2,msdos1)'
search --no-floppy --fs-uuid --set 0ddfb60a-4791-45c9-85ec-c13c42c459af
if loadfont /usr/share/grub/unicode.pf2 ; then
  set gfxmode=640x480
  load_video
  insmod gfxterm
fi
terminal_output gfxterm
insmod part_msdos
insmod ext2
set root='(hd2,msdos1)'
search --no-floppy --fs-uuid --set 0ddfb60a-4791-45c9-85ec-c13c42c459af
set locale_dir=($root)/boot/grub/locale
set lang=en
insmod gettext
if [ "${recordfail}" = 1 ]; then
  set timeout=-1
else
  set timeout=10
fi
### END /etc/grub.d/00_header ###

### BEGIN /etc/grub.d/05_debian_theme ###
set menu_color_normal=white/black
set menu_color_highlight=black/light-gray
### END /etc/grub.d/05_debian_theme ###

### BEGIN /etc/grub.d/10_linux ###
menuentry 'Ubuntu, with Linux 2.6.35-22-generic' --class ubuntu --class 
gnu-linux --class gnu --class os {
        recordfail
        insmod part_msdos
        insmod ext2
        set root='(hd2,msdos1)'
        search --no-floppy --fs-uuid --set 0ddfb60a-4791-45c9-85ec-c13c42c459af
        linux   /boot/vmlinuz-2.6.35-22-generic root=/dev/sdc1 ro   quiet splash
        initrd  /boot/initrd.img-2.6.35-22-generic
}
menuentry 'Ubuntu, with Linux 2.6.35-22-generic (recovery mode)' --class ubuntu 
--class gnu-linux --class gnu --class os {
        recordfail
        insmod part_msdos
        insmod ext2
        set root='(hd2,msdos1)'
        search --no-floppy --fs-uuid --set 0ddfb60a-4791-45c9-85ec-c13c42c459af
        echo    'Loading Linux 2.6.35-22-generic ...'
        linux   /boot/vmlinuz-2.6.35-22-generic root=/dev/sdc1 ro single 
        echo    'Loading initial ramdisk ...'
        initrd  /boot/initrd.img-2.6.35-22-generic
}
### END /etc/grub.d/10_linux ###

### BEGIN /etc/grub.d/20_linux_xen ###
### END /etc/grub.d/20_linux_xen ###

### BEGIN /etc/grub.d/20_memtest86+ ###
menuentry "Memory test (memtest86+)" {
        insmod part_msdos
        insmod ext2
        set root='(hd2,msdos1)'
        search --no-floppy --fs-uuid --set 0ddfb60a-4791-45c9-85ec-c13c42c459af
        linux16 /boot/memtest86+.bin
}
menuentry "Memory test (memtest86+, serial console 115200)" {
        insmod part_msdos
        insmod ext2
        set root='(hd2,msdos1)'
        search --no-floppy --fs-uuid --set 0ddfb60a-4791-45c9-85ec-c13c42c459af
        linux16 /boot/memtest86+.bin console=ttyS0,115200n8
}
### END /etc/grub.d/20_memtest86+ ###

### BEGIN /etc/grub.d/30_os-prober ###
menuentry "Microsoft Windows XP Professional (on /dev/sda1)" {
        insmod part_msdos
        insmod ntfs#
# DO NOT EDIT THIS FILE
#
# It is automatically generated by grub-mkconfig using templates
# from /etc/grub.d and settings from /etc/default/grub
#

### BEGIN /etc/grub.d/00_header ###
if [ -s $prefix/grubenv ]; then
  set have_grubenv=true
  load_env
fi
set default="0"
if [ "${prev_saved_entry}" ]; then
  set saved_entry="${prev_saved_entry}"
  save_env saved_entry
  set prev_saved_entry=
  save_env prev_saved_entry
  set boot_once=true
fi

function savedefault {
  if [ -z "${boot_once}" ]; then
    saved_entry="${chosen}"
    save_env saved_entry
  fi
}

function recordfail {
  set recordfail=1
  if [ -n "${have_grubenv}" ]; then if [ -z "${boot_once}" ]; then save_env 
recordfail; fi; fi
}

function load_video {
  insmod vbe
  insmod vga
}

insmod part_msdos
insmod ext2
set root='(hd2,msdos1)'
search --no-floppy --fs-uuid --set 0ddfb60a-4791-45c9-85ec-c13c42c459af
if loadfont /usr/share/grub/unicode.pf2 ; then
  set gfxmode=640x480
  load_video
  insmod gfxterm
fi
terminal_output gfxterm
insmod part_msdos
insmod ext2
set root='(hd2,msdos1)'
search --no-floppy --fs-uuid --set 0ddfb60a-4791-45c9-85ec-c13c42c459af
set locale_dir=($root)/boot/grub/locale
set lang=en
insmod gettext
if [ "${recordfail}" = 1 ]; then
  set timeout=-1
else
  set timeout=10
fi
### END /etc/grub.d/00_header ###

### BEGIN /etc/grub.d/05_debian_theme ###
set menu_color_normal=white/black
set menu_color_highlight=black/light-gray
### END /etc/grub.d/05_debian_theme ###

### BEGIN /etc/grub.d/10_linux ###
menuentry 'Ubuntu, with Linux 2.6.35-22-generic' --class ubuntu --class 
gnu-linux --class gnu --class os {
        recordfail
        insmod part_msdos
        insmod ext2
        set root='(hd2,msdos1)'
        search --no-floppy --fs-uuid --set 0ddfb60a-4791-45c9-85ec-c13c42c459af
        linux   /boot/vmlinuz-2.6.35-22-generic root=/dev/sdc1 ro   quiet splash
        initrd  /boot/initrd.img-2.6.35-22-generic
}
menuentry 'Ubuntu, with Linux 2.6.35-22-generic (recovery mode)' --class ubuntu 
--class gnu-linux --class gnu --class os {
        recordfail
        insmod part_msdos
        insmod ext2
        set root='(hd2,msdos1)'
        search --no-floppy --fs-uuid --set 0ddfb60a-4791-45c9-85ec-c13c42c459af
        echo    'Loading Linux 2.6.35-22-generic ...'
        linux   /boot/vmlinuz-2.6.35-22-generic root=/dev/sdc1 ro single 
        echo    'Loading initial ramdisk ...'
        initrd  /boot/initrd.img-2.6.35-22-generic
}
### END /etc/grub.d/10_linux ###

### BEGIN /etc/grub.d/20_linux_xen ###
### END /etc/grub.d/20_linux_xen ###

### BEGIN /etc/grub.d/20_memtest86+ ###
menuentry "Memory test (memtest86+)" {
        insmod part_msdos
        insmod ext2
        set root='(hd2,msdos1)'
        search --no-floppy --fs-uuid --set 0ddfb60a-4791-45c9-85ec-c13c42c459af
        linux16 /boot/memtest86+.bin
}
menuentry "Memory test (memtest86+, serial console 115200)" {
        insmod part_msdos
        insmod ext2
        set root='(hd2,msdos1)'
        search --no-floppy --fs-uuid --set 0ddfb60a-4791-45c9-85ec-c13c42c459af
        linux16 /boot/memtest86+.bin console=ttyS0,115200n8
}
### END /etc/grub.d/20_memtest86+ ###

### BEGIN /etc/grub.d/30_os-prober ###
menuentry "Microsoft Windows XP Professional (on /dev/sda1)" {
        insmod part_msdos
        insmod ntfs
        set root='(hd0,msdos1)'
        search --no-floppy --fs-uuid --set 637d775958635993
        drivemap -s (hd0) ${root}
        chainloader +1
}
menuentry "Windows NT/2000/XP (on /dev/sda2)" {
        insmod part_msdos
        insmod fat
        set root='(hd0,msdos2)'
        search --no-floppy --fs-uuid --set 3ec6-2e70
        drivemap -s (hd0) ${root}
        chainloader +1
}
menuentry "Microsoft Windows XP Embedded (on /dev/sda3)" {
        insmod part_msdos
        insmod ntfs
        set root='(hd0,msdos3)'
        search --no-floppy --fs-uuid --set 60d45d0ed45ce834
        drivemap -s (hd0) ${root}
        chainloader +1
}
### END /etc/grub.d/30_os-prober ###

### BEGIN /etc/grub.d/40_custom ###
# This file provides an easy way to add custom menu entries.  Simply type the
# menu entries you want to add after this comment.  Be careful not to change
# the 'exec tail' line above.
### END /etc/grub.d/40_custom ###

### BEGIN /etc/grub.d/41_custom ###
if [ -f  $prefix/custom.cfg ]; then
  source $prefix/custom.cfg;
fi
### END /etc/grub.d/41_custom ###

        set root='(hd0,msdos1)'
        search --no-floppy --fs-uuid --set 637d775958635993
        drivemap -s (hd0) ${root}
        chainloader +1
}
menuentry "Windows NT/2000/XP (on /dev/sda2)" {
        insmod part_msdos
        insmod fat
        set root='(hd0,msdos2)'
        search --no-floppy --fs-uuid --set 3ec6-2e70
        drivemap -s (hd0) ${root}
        chainloader +1
}
menuentry "Microsoft Windows XP Embedded (on /dev/sda3)" {
        insmod part_msdos
        insmod ntfs
        set root='(hd0,msdos3)'
        search --no-floppy --fs-uuid --set 60d45d0ed45ce834
        drivemap -s (hd0) ${root}
        chainloader +1
}
### END /etc/grub.d/30_os-prober ###

### BEGIN /etc/grub.d/40_custom ###
# This file provides an easy way to add custom menu entries.  Simply type the
# menu entries you want to add after this comment.  Be careful not to change
# the 'exec tail' line above.
### END /etc/grub.d/40_custom ###

### BEGIN /etc/grub.d/41_custom ###
if [ -f  $prefix/custom.cfg ]; then
  source $prefix/custom.cfg;
fi
### END /etc/grub.d/41_custom ###

-- 
Grub Installer gets devices wrong when running from live USB
https://bugs.launchpad.net/bugs/384633
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