This seems to be a syslinux bug; setting "prompt 1" rather than "prompt 0" fixes it (although that will break genuine fallback from gfxboot to the syslinux menu so isn't a real solution). syslinux 2:3.63+dfsg-2ubuntu2 was supposed to have removed the need for this, so it seems likely to me that there's some weird syslinux bug here.
This seems to be a syslinux bug; setting "prompt 1" rather than "prompt 0" fixes it (although that will break genuine fallback from gfxboot to the syslinux menu so isn't a real solution). syslinux 2:3.63+ dfsg-2ubuntu2 was supposed to have removed the need for this, so it seems likely to me that there's some weird syslinux bug here.