In order for grub to ‘see’ virtual disks, you have to tell it about them with the ‘device’ command:
grub> device (hd0) /dev/xvda
grub> root (hd0,0)
grub> setup (hd0)
Keep in mind, installing grub on the MBR is not always necessary with Xen PV guests, but is highly useful for V2P conversions.