I think Grub was complaining when it said "Cannot find list of partitions!"... What does
sudo fdisk -l /dev/sdb
output? Also, (re-reading your post), you're updating grub on the hard-drive which you just plugged in. I meant to run "update-grub" on your existing (/dev/sda) system. Finally, it might be worth unplugging your main hard-drive and trying to boot it like that. If it didn't boot, then you know that Ubuntu must have been installed incorrectly, or that there is a problem with booting from USB. Be aware that when you do this the /dev/sda /dev/sdb designations may change - make sure you know which drive you're working with before doing anything.
Hope some of this helps