So, to provide a more extensive explanation on why this isn’t working.
In the early days, PC operating systems accessed hard disks by raising interrupts which are then handled by the BIOS (or something like that, anyway). Today, this type of access is only used in the earliest stages of booting the PC. After that, drivers talk to the storage controllers directly, providing vastly superior performance and features.
GRUB’s disk mapping is only compatible with the interrupt disk access type, unless the operating system has drivers specifically supporting GRUB’s disk mapping. Naturally, Windows doesn’t have these.
Windows Setup and Windows PE are very similar in that they both run from a WIM image that’s completely read to memory with interrupt type access by the boot manager. After that, they don’t have to access any disk at all. It’s just that the Windows Setup program itself needs to access configuration files that are not present in this WIM image but directly on the setup medium. Of course, the rest of the installation files are also not in the boot WIM image.
So what you need to do is inject Windows Setup’s boot image with drivers for GRUB’s disk mapping, if there are any available. Alternatively, you could also take a regular Windows Setup medium and tweak it with a boot manager and additional files. That way, the files Setup needs are present directly on the medium.