So I got the Universal back, with the correct ROM reflashed. It has 128MB memory now, works much better. Linux starts fine, without the mem=128M argument added, no changes to startup.txt necessary, finds 128MB of memory. X works great without swap now, it's definitely much better.
One problem though with suspend. When you suspend, there is no way to wake the Universal up, it doesn't respond to the power key. I saw a mention somewhere, specifically focusing on this, i.e. that expanding to 128MB, you will need to modify something, so it doesn't have the suspend-resume problem. Am trying to find the reference now, maybe it was on xda-developers. If anyone has any hints, I'd appreciate the help.