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So I decided to move away from floppies and go on to hard drives,

The thing I'm struggling with is how to create a disk image with proper MBR, FAT32 formated + GRUB. I'm using Ubuntu.

Thanks in advance.

Take a look in the Wiki, there is a step-for-step guide on creating hard disk images in Linux.
http://wiki.osdev.org/Loopback_Device#Hard_Disk_Images

Thank you, kind sir.