I found that it can be done with loopback as follows

menuentry "Lucid ISO" {
loopback loop (hd0,1)/boot/iso/ubuntu-10.04-desktop-i386.iso
linux (loop)/casper/vmlinuz boot=casper iso-scan/filename=/boot/iso/ubuntu-10.04-desktop-i386.iso noprompt noeject
initrd (loop)/casper/initrd.lz
}

But it works only with ubuntu or its derivatives. How it should be written if I want to boot other live images like fedora, cent, opensuse etc. ?

Edit: I found some other entries but all of them are probably debian based.

menuentry "Linux Mint 10 Gnome ISO" {
 loopback loop /linuxmint10.iso
 linux (loop)/casper/vmlinuz file=/cdrom/preseed/mint.seed boot=casper initrd=/casper/initrd.lz iso-scan/filename=/linuxmint10.iso noeject noprompt splash --
 initrd (loop)/casper/initrd.lz
}

menuentry "DBAN ISO" {
 loopback loop /dban.iso
 linux (loop)/DBAN.BZI nuke="dwipe" iso-scan/filename=/dban.iso silent --
}


menuentry "Tinycore ISO" {
 loopback loop /tinycore.iso
 linux (loop)/boot/bzImage --
 initrd (loop)/boot/tinycore.gz
}


menuentry "SystemRescueCd" {
 loopback loop /systemrescuecd.iso
 linux (loop)/isolinux/rescuecd isoloop=/systemrescuecd.iso setkmap=us docache dostartx
 initrd (loop)/isolinux/initram.igz
}

Edit2: How to chainload grub and syslinux from grub2?

Edit3: I want to boot other live images without any removable devices and use grub2 so need menu entries specific to grub2.