The "keep" borks the terminals for gfxpayload but the GRUB_GFXPAYLOAD_LINUX works well if you specify the resolution. Note this will not work with non-GRUB2 bootloaders (i.e., GRUB) so you may have to update to GRUB2 if you are running the older grub.
Alternatively (this works for me with Lucid, Nvidia with grub2) you can edit your grub (sudo gedit /etc/default/grub) file and add the following:
GRUB_GFXMODE= 1280x800 _LINUX= 1280x800x32
GRUB_GFXPAYLOAD
then run:
sudo update-grub
The "keep" borks the terminals for gfxpayload but the GRUB_GFXPAYLOAD _LINUX works well if you specify the resolution. Note this will not work with non-GRUB2 bootloaders (i.e., GRUB) so you may have to update to GRUB2 if you are running the older grub.