grub-bios-setup "failed to get canonical path of overlay" when run from live USB

[Bruno Dantas]

I can successfully run these two commands when booted into a GNU/Linux
system running from a partition on my harddrive (/dev/sda1):

$ sudo grub-mkimage -O i386-pc -o /boot/grub/i386-pc/core.img --prefix
'(hd0,msdos1)/boot/grub' biosdisk part_msdos ext2

$ sudo grub-bios-setup --directory=/boot/grub/i386-pc /dev/sda

However, if I try running these same commands from same OS running *on a
live USB*, the second command fails with this message:

"grub-bios-setup: error: failed to get canonical path of `overlay'."

What does grub-bios-setup need to succeed in this setting?

P.S. I know how to install grub2 to sda from live USB using mount and
grub-install, but I'd like to learn how to do it the more hands-on way
above so that I can have a fuller understanding of what's going on.