Please help with following situation

[Steve Cohen]

I am trying to develop an installer package for a specialized 
application that runs on MS-DOS (Actually Windows 95 without the GUI).

To this end, I am using a machine that has been preloaded with Ubuntu 
Linux 10.04 (uses grub 2).  This machine has both a floppy and a CDROM.

When booted with a special MS-DOS floppy and a special CDROM in the 
drive, it copies the system from the floppy drive (A:) to drive (C:).

"Drive C:" is a partition of the only hard drive on the system - 
/dev/sda3 in linux terms.  This partition was carved out by GParted
and formatted using DOS Format command from the system booted from the 
floppy in drive A:

The test of all this, is that when the floppy is not present in the 
drive and the system is booted, MSDOS should boot from "Drive C:"

Of course, since this is a dual boot system, this must be reflected in 
GRUB.  I have created the following file:  /etc/grub.d//11_msdos.  Its 
contents are as follows:

#!/bin/sh -e
echo "Adding MS-DOS"
cat << EOF
menuentry "MS-DOS" {
set root=(hd0,3)
makeactive
chainloader +1
}
EOF

I run update-grub and this gets written into /boot/grub/grub.cfg.

When I reboot the machine (floppy drive not loaded, of course) the grub 
menu appears.  But when I select MS-DOS, I see the
"Invalid System Disk" error and the system won't load.

Can someone help me understand why not?