To do the hard drive installation MacPup needs to be able to see the files.
I had the same problem and did the following.
In my case, the iso was located on a hard drive partition but should be nearly the same from usb.
I extracted the iso files to the same location as the iso file (e.g. to the usb in your case).
In order to allow MacPup installer to see them, add the location to fstab.
I used blkid to get the UUID and added a line to fstab to make it show up in the file browser.
Leaving the file browser open, point the installer to the partition (or usb) extracted files.
This should work to install to hard drive ... did in my case.
If not, copy the files to a hard drive partition and point fstab to there.
That should do the trick.
If you have grub2 installed already, then do not install grub from MacPup installation.
Just update grub2 from wherever you initially installed grub2 from.
This will make MacPup accessible from your grub2 menu.
Hope this helps!
timber