OK, I think I understand what you are saying.
If I am right, you had grub 2 on the MBR of a USB flash drive which would have made a /boot folder on the drive. In that /boot folder there was a folder named grub and another called iso.
By manually editing the grub.cfg file in the grub folder you could simply boot the .iso file of ubuntu.
Am I correct?
If I am you can probably get back to where you were originally by repeating the grub installation to the MBR of the flash drive with
where sdx is your flash drive, and then copying the iso file back again to the /iso folder.
sudo grub-install --root-directory=/media/USBFolderName /dev/sdx
All the info I have given here can be found in more detail at http://ubuntuforums.org/showthread.php?t=1288604
If I am still missing your point I apologise, but I don't totally follow what you have done, nor which OS you are trying, but can not manage to boot. Is it an OS or just an iso file on the USB drive? Is your OS on an internal hard disk, but grub now missing from both that and the USB?
More details please.