Looks like something went wrong when creating the USB drive. How exactly have you done that? Details matter very much here. My gut feeling tells me that you may have written the ISO to a partition instead of the whole raw block device.
Wrong:
dd if=image.iso of=/dev/sda1
And grub then can’t find the device, because the offset is wrong.
Correct:
dd ... of=/dev/sda
(don’t actually use this example and always use persitent names)