You simply remove the entry in whatever line it appears. It is probably at the end of one of GRUB_CMDLINE... lines. You will then have to set up the resolution within your OS. For Ubuntu, you can probably do so via System, Preferences, Display.
I don't see a problem with your splash-image location. Most of the images are for 640x480 and if you have your gfxmode set to something other than that I believe G2 has a problem displaying the image.
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