AFAIK grub does support booting a CD natively, but if someone knows how to do it please let me know.
In the meantime try this, download this bootsector file and put it in your /boot
and add in grub.conf/menu.lst:
chainloader /boot/bootflop.bin +1
what this file does is that it'll first try booting from the floppy, if one isnt present then it'll try to boot from the cdrom, a bit of a nuisance but hey it works.