I had a look at my fog install (I also use Ubuntu) and my tftpboot directory is in the root folder. It contains a fog folder, a pxelinux.cfg folder, and a tftpboot folder. There are also a number of files. Do you have these in your root directory? I think this is where it boots from, not from the location you have found in /var/lib. The total size is around 17.3 meg. If you find your fog install isn't working you can always run the installfog.sh again for another try (I am about to do this myself to convert to a storage server).
Second thing I guess is what is your PXE / DHCP situation? I have a windows domain and I have set options 66 and 67 on my windows DHCP server to point to the right file and ip address. Your DHCP server might not be set up or you might have enabled the fog DHCP server when you could have used your windows server if you have one.
