Actually it's much easier than that.

On an NTFS or FAT32 drive jump dirve, place the bt.iso in a sub folder. I called mine /images. And add this to the grub menu.lst:

title BackTrack 4 Final (Penetration Testing)
ls /images/bt.iso || find --set-root /images/bt.iso
map --heads=0 --sectors-per-track=0 /images/bt.iso (0xff) || map --heads=0 --sectors-per-track=0 --mem /images/bt.iso (0xff)
map --hook
chainloader (0xff)

It will load just like a DVD.
[rename you're iso to bt.iso if it's different.]