grub-mkconfig calls grub-probe which tries to figure out the root device. This fails when it finds an unsupported filesystem like btrfs. The patch that follows will add a fallback to grub-probe. It has been adapted from a patch at launchpad 450260. The difference is that defaulting to /dev/sda1 seems wrong to me (and in my case is).
Created attachment 217730 [details, diff] patch for grub2 from bzr
Was this issue reported upstream? This patch will be applied faster in case upstream reviews fix.
take it upstream. i'm not interested in screwing with grub2 at this time.