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Instead of placing grub into the MBR (which is the default for Debian 5 Lenny, and has been suggested above as a work-around to the error 18 message) I had to create a small (200 MB) /boot partition at the beginning of the disk and place grub into the partition's boot sector - in my case into (hd0). Interestingly, the motherboard was brand new - a Gigabyte GA-MA78GM-S2H, and yet grub couldn't handle the 360 GB disk.
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