Well, that may be due to a number of reasons.
If I recall correctly, the image is "wrongly" called SDI, since it is not a SDI image at all, but a plain, RAW image.
Cannot remember if it is a "full disk" image or a "volume image".
The usual rule of the thumb, when experimenting is to NEVER use a pre-made menu.lst BUT use Command Line instead.
Just issue at the grub> prompt the lines one by one and report if there is any feedback.
If you can get to the point BEFORE the "chainloader" command without any error/warning, try issuing the following commands:
cat --hex --length=16 --skip=0 (hd0)0+1
cat --hex --length=4 --skip=440 (hd0)0+1
cat --hex --length=16 --skip=446 (hd0)0+1
cat --hex --length=2 --skip=510 (hd0)0+1
the first one will print on screen first 16 bytes of the first sector of the mapped disk (enough to verify it is a MBR code).
the second one will print on screen the Disk SIgnature.
the third one will print on screen the first entry in the partition table (i.e. the addresses/partition ID of the (hd0,0) partition).
the fourth one will print on screen the "Magic Bytes".
The above if the image is a "whole disk" image.
If it is a "volume" or "superfloppy" image, it's first sector will be a bootsector instead, here are the "common" first few bytes of bootsectors and MBR's:
Report what happens.