I tried, but still couldn't boot the ISO from menu.lst on the floppy disk. Although it's exactly the same as the item in menu.lst on the hard disk, the former will have:
Loading Stage2 from the CDROM......
An random processor error occurred.
This PC automatically restarted.
Note: (hd0,0) all have ieldr, isoemu.ini, cdrom.iso. And the content of isoemu.ini is isoemu cdrom.iso
title Boot from iso file (hd0,0)/cdrom.iso
chainloader --load-segment=0x1000 --load-offset=0 (hd0,0)/ieldr
As long as you select the above item from the grub installed on the hard disk - whether it's grldr loaded through boot.ini or root(hd0,0) setup(hd0,0) - in menu.lst, it can boot the ISO normally.
But as long as you select the above item from the grub installed on the floppy disk - whether it's guided by grldr or root(fd0) setup(fd0) - in menu.lst, it will have the automatic restart described at the beginning.