I thought I would put an update here on the progress with this package:

All the above details have been resolved.

1. Was trivial.
2. Item "CONFIG_ASH_EXPAND_PRMT=y " was disabled in default busybox config.
3. This also had something to do with (2) above. Additionally, I expanded the history size to 30 lines from the default of 15 and also modified ash.c to give a standard linux PS1 environment of "PS1=[\u@\h \W]\$ " for a bit better readability. (This is the only way to get this to work as bashrc and profile have no effect for local shells. I'm going to build this way since it's the standard linux prompt. If others decide to use this package once I make it available you should change your hostname from the Nokia default to something shorter so it won't take up the entire console )

I also went through the maemo diff for busybox and tried to approximate the debian/maemo config as much as possible without adding the patches/backports or disabling any applets. Another thing to note is that, since busybox has all the applets executable for anyone, you don't need to be root to run them. Of course this has good points, and also bad. I'm going to go back through them and change permissions for any that should be suid root.
Current size is 743.5 KB with big command history and all busybox apps enabled.