Loading modules with an embedded config file seems to fail

[Colin Close <itchka@compuserve.com>]

I have created an embedded image like this:-
chroot "$CHROOTNAME" /usr/bin/grub2-mkimage -d "$GRUB_LIB" -O i386-pc -o "$GRUB_IMG" -p /boot/grub \-c /ISO/boot/grub/start_cfg  iso9660 biosdisk test
cat "$CHROOTNAME"/"$GRUB_LIB"/boot.img "$CHROOTNAME"/"$GRUB_IMG" > "$ISOROOTNAME"/boot/grub/grub2-embed_img
cat "$CHROOTNAME"/"$GRUB_LIB"/cdboot.img "$CHROOTNAME"/"$GRUB_IMG" > "$ISOROOTNAME"/boot/grub/grub2-eltorito.img

and used the following options with xorriso to build an iso image

XORRISO_OPTIONS1=" -b boot/grub/grub2-eltorito.img -no-emul-boot -boot-info-table --embedded-boot $ISOROOTNAME/boot/grub/grub2-embed_img --protective-msdos-label"

The embedded image contain this start_cfg file

if [ "${grub_platform}" == "efi" ]; then
search --no-floppy --set=root --fs-uuid '%GRUB_UUID%'
set prefix=($root)/boot/grub
set efi=1
source ($root)/boot/grub/grub.cfg
fi
insmod part_apple
insmod part_bsd
insmod part_gpt
insmod part_msdos
set bios=1
set efi=0
source ($root)/boot/grub/grub.cfg

When I boot the iso in BIOS mode I get the following errors reported
Unknown command ` if '
Unknown command ` search '
Unknown command ` source '
Unknown command ` fi '
Unknown command ` source '

Can anyone help me with this I have tried every possible strategy and nothing seems to work. Currently the config file is set up so it falls through to the bios boot and the flags get set right and things do work but obviously this is not ideal.  
Best,
Colin Close
OpenMandriva