There are at least four different ways you could get that USB media to boot. Let's first expand on the one you already tried. You are missing either some parameters for that kernel or an initrd file, possibly both. What exactly those extra parameters need to be depend on the distribution you want to boot, and I don't know the particular one, but as a start you can try:
grub > set root=(hd1,msdos1)
grub > linux (hd1,msdos1)/install/vmlinuz
grub > initrd (hd1,msdos1)/install/initrd
grub > boot
If that doesn't work it may be simpler to take a different approach and simply enable USB booting inside your BIOS configuration.
It is also possible to boot GRUB from GRUB, so from GRUB on your harddisk you can boot GRUB from the USB device. Try this command:
The exact path needed might be different, the above is my best guess based on the available information.
It is also possible to use a chainloader to boot the bootrecord from a different device just as if it had been loaded by the BIOS. This is often used to allow the boot menu on a live CD or PXE boot system to boot from local harddisk or to allow the boot menu on the harddisk to boot from floppy. It might be possible to use the same approach to boot a USB media from GRUB on an internal drive, but I am less certain about that because in that case both drives might expect to be assigned drive number 0x80 in the BIOS calls.