error: Running 'grub-install --no-floppy "/dev/md0"' failed.

The /dev/md0 device is major 9 and the /dev/vda device is major 251.

I also set the bootable flag for each of the /dev/vd*1 partitions that made up /dev/md0, and I set raid to boot in degraded mode.

I was able to reproduce using the following:
Manual
select vda - create empty - free space -create two partitions 1.8G, 345.5M, both primary/raid, /dev/vda1 has bootable flag
select vdb - create empty - free space -create two partitions 1.8G, 345.5M, both primary/raid, /dev/vdb1 has bootable flag

press 'Finish partitioning and write change to disk' accidentally

Configure raid: write change to the storage devices (both vda and vdb are listed)
Create MD Device (Raid 1, num active: 2, num spare 0, active devices are /dev/vda1 and /dev/vdb1)
Create MD Device (Raid 1, num active: 2, num spare 0, active devices are /dev/vda2 and /dev/vdb2)
Finish

set /dev/md0 as / and ext4 (everything else are defaults)
set /dev/md1 as swap

do you want to boot your system if your raid becomes degraded? yes
write changes to disk: yes

ubuntu (name)
ubuntu (username)
ubuntu (password)
ubuntu (use weak, yes)
encrypt home (no)
proxy (none)
no automatic updates
no extra packages

virsh dumpxml test-iso-1 output

This is the command line I used to create the VM (using virt-install):
$ ps auxww|grep kvm|grep test-iso-1
jamie 31361 0.0 0.3 74328 15248 pts/8 S 09:51 0:00 /usr/bin/python -tt /usr/bin/virt-install --connect=qemu:///system --name=test-iso-1 --ram=384 --vcpus=2 --disk path=/home/jamie/vms/kvm/test-iso-1/disk1.img,size=2.00 --disk path=/home/jamie/vms/kvm/test-iso-1/disk2.img,size=2.00 --accelerate --hvm --cdrom=./karmic-server-amd64.iso --os-type=linux --os-variant=ubuntuKarmic --vnc --network=network:default
root 31371 33.3 10.2 572896 407852 ? Sl 09:51 15:45 /usr/bin/kvm -S -M pc-0.11 -m 384 -smp 2 -name test-iso-1 -uuid 58d8f49f-287c-a6c5-59f3-6323076f6a2e -monitor unix:/var/run/libvirt/qemu/test-iso-1.monitor,server,nowait -no-reboot -boot d -drive file=/home/jamie/vms/isos/karmic/karmic-server-amd64.iso,if=ide,media=cdrom,index=2 -drive file=/home/jamie/vms/kvm/test-iso-1/disk1.img,if=virtio,index=0 -drive file=/home/jamie/vms/kvm/test-iso-1/disk2.img,if=virtio,index=1 -net nic,macaddr=54:52:00:75:e0:47,vlan=0,model=virtio,name=virtio.0 -net tap,fd=19,vlan=0,name=tap.0 -serial pty -parallel none -usb -vnc 127.0.0.1:2 -k en-us -vga cirrus

This disk files:
$ ls -1
disk1.img
disk2.img
$ file ./*
./disk1.img: x86 boot sector; partition 1: ID=0xfd, active, starthead 1, startsector 63, 3518172 sectors; partition 2: ID=0xfd, starthead 0, startsector 3518235, 674730 sectors, code offset 0xb8
./disk2.img: x86 boot sector; partition 1: ID=0xfd, active, starthead 1, startsector 63, 3518172 sectors; partition 2: ID=0xfd, starthead 0, startsector 3518235, 674730 sectors, code offset 0xb8

There are no relevant messages in the host dmesg or libvirt logs.

Here are the logs for my second attempt, along with screenshots along the way.

Marking confirmed since I was able to reproduce.

I have a fix for the grub2 part of this, but then grub-installer falls over because it tries to install to /dev/md0, but that's a RAID of two partitions not two disks in this case, and it doesn't like that at all. I'll need to change both.

This bug was fixed in the package grub2 - 1.97~beta4-1ubuntu3

---------------
grub2 (1.97~beta4-1ubuntu3) karmic; urgency=low

  * Backport from Debian (Felix Zielcke):
    - Add a build dependency on texinfo (LP: #453442).
  * debian/patches/968_raid_virtio.diff: Handle RAID devices containing
    virtio components (LP: #457687).

 -- Colin Watson <email address hidden> Fri, 23 Oct 2009 21:58:13 +0100

This bug was fixed in the package grub-installer - 1.43ubuntu8

---------------
grub-installer (1.43ubuntu8) karmic; urgency=low

  * If using GRUB 2 and installing to a RAID device any of whose components
    are partitions, then default to installing to the MBRs of each of the
    containing disks, since GRUB 2 will refuse to install to the partition
    devices (LP: #457687).

 -- Colin Watson <email address hidden> Fri, 23 Oct 2009 22:02:19 +0100

There is again the same error message in 9.10 when installing grub to md device. -> Bug #462171