you are right there is an issue with the image. As you mentioned once trying to log you get stuck with a blank page.
I recreated a new image in place of the other (see above) while keeping the old rootfs instead of creating my own and it corrects the bug.
For your information the rootfs was previously generated by some home made script which seems to miss something. I had done this as in any case I must correct the fstab inside. The reason for this is quite simple this comes from my development vmware image which uses an EXT2 file system as second partition not a ISOZ fs.
Thanks for your remark.
Hopefully this should now work.
Concerning your kernel panic this might come from the iso image initially taken from the Compact flash pakage second partition.
It might be that part is missing due to that. I should have a look at it.