hmmm. on beta 1 ( I don't feel like flashing just yet) I put the cramfs on the sd (fat 16 formatted, I think)
Mounted it "mount -o loop /mnt/card/what-ever-the-image-is-called.cramfs /mnt/ide/oo" My hd is mounted at mnt/ide and formatted ext3, and I had made a directory called /mnt/ide/oo for this purpose.
ran the setup program and restarted icewm.
Got a menu item and all worked as expected.
It sounds like you are ding the same thing, or pretty close logically.
Try from a cf? maybe the new sd drivers are a problem in some obscure and incomprehensible way?
maybe remove the mount point, reboot and do it over?
maybe you are having problems with free ram..and it is working, but taking forever to load fully?
stabbing in the dark, but I know it can be done.
Kind of ironic that you are the one with a glitch on this, isn't it?