The problem still exists in version 1.97.1 and it seems no option --grub-mbr 
there.
I installed 1.97.1 from source and want write loader in sda2, resulted in the 
same error:
grub-setup: warn: Attempting to install GRUB to a partition instead of the MBR.
 This is a BAD idea.
grub-setup: warn: Embedding is not possible.  GRUB can only be installed in this
setup by using blocklists.  However, blocklists are UNRELIABLE and its use is
discouraged.
grub-setup: error: If you really want blocklists, use --force.