Pype is correct. The stage1 (512 bytes) traditionally goes into the MBR and gets patched with the sector number of the stage2 (several blocks in size), which is "deposited" somewhere in the file system.
The concatenated stage1 / stage2 install is
only for to create a boot media (floppy disk) which launches you into the GRUB shell you can actually
do the installation from. Writing stage1 and stage2 to a file system has an excellent chance of corrupting the file system if it holds any significant information in the first few blocks.
See the
FAQ entry on GRUB for a step-by-step tutorial that guides you through this two-step process.