Yes, you are correct, thanks!
Just for other people's reference, it seems that grub settings are ignored on digital ocean, and that you instead have to specify which kernel is booted from the Digital Ocean control panel, loaded from outside the droplet. That doesn't seem like a terribly smart setup to me, since it apparently use the kernel modules installed in the droplet, which obviously can be incompatible with the kernel.
1) log into the digital ocean control panel
2) go to the droplet that has this issue.
3) go to settings, then kernel
4) change it to the latest kernel. i.e. for me its: * Debian 7.0 x64 vmlinuz-3.2.0-4-amd64 (3.2.60-1+deb7u3)
5) power down your droplet
6) power up.
Regards, Thue