We present a modification of the generalized Flory dimer theory to investigate the nematic (N) to isotropic (I) phase transition in chain fluids. We focus on rigid linear fused hard-sphere (LFHS) chain molecules in this study. A generalized density functional theory is developed, which involves an angular weighting of the dimer reference fluid as suggested by decoupling theory, to accommodate nematic ordering in the system. A key ingredient of this theory is the calculation of the exact excluded volume for a pair of molecules in an arbitrary relative orientation, which extends the recent work by Williamson and Jackson for linear tangent hard-sphere chain molecules to the case of linear fused hard-sphere chains with arbitrary intramolecular bondlength. The present results for the N-I transition are compared with previous theories and with computer simulations. In comparison with previous studies, the results show much better agreement with simulations for both the coexistence densities and the nematic order parameter at the transition.