GRUB_CMDLINE_LINUX_DEFAULT should have already been in /etc/default/grub at the top of the file. For example mine looks like this (Debian, so it's different than yours)...
So I would change my line like so...
GRUB_DISTRIBUTOR=`lsb_release -i -s 2> /dev/null || echo Debian`
Make sure you don't have 2 lines. The other thing, you posted that your boot parameter shows...
That says ttyl, not tty1. Check /etc/default/grub for typos, then run sudo update-grub again.
linux /vmlunz-3.0.0-12-generic-pae root=/dev/mapper/dev-root ro console=ttyl vt.handoff=7