Well - it's back alive and squeaky clean after a reflash. So before I commit too much in configuration time, I am going to quickly get it into Red Pill mode again and then try installing magic::sys and see what happens. If I can add some "don't do that!!" input to the community I'll be really happy. If you are interested in a good example check this out:

http://www.nslu2-linux.org/wiki/HowTo/EraseAll

My .profile for both root and user looked clean (actually the one for user didn't even exist). The root .profile only had standard skeleton looking stuff (but it did look more like a bash skeleton to me - I have no experience with ash so I don't know how similar they are).

Thanks everyone for all the help and I will keep the forum posted on my progress (or potentially lack of .. but that is also a learning experience ;-)

Cheers,
Kris