I am using Ubuntu 11.04 (fully updated) on a Dell Inspiron 500m. I can confirm 
the same bug that if I do not delete the following line  in grub, Ubuntu cannot 
boot. 
set gfxpayload=$linux_gfx_mode

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https://bugs.launchpad.net/bugs/702594

Title:
  $linux_gfx_mode not propagated into submenus

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