Vik, my impression is that if GRUB is not loaded into the MBR then the BIOS cannot find it and will not run it. Read the GRUB manual:
http://www.gnu.org/software/grub/manual/grub.html
and see if you agree. Note that the contents of /boot/grub are only part of the story, some other arcane gizmo has to sit where the BIOS can find it before it picks up XP or whatever, and that gizmo, I assume, then fires up the stuff in /boot/grub.