You were very close. I succeeded to run USB dongle based on RT5370.
Neigher I had to deal with preboot script nor set MODULE.
But I encountered the same error as you: “SIOCSIFFLAGS: No such file or directory”
and finally from dmesg “rt2x00lib_request_firmware error – failed to request firmware”.
Googling a little I find out on http://mitchtech.net/realtek-wireless-dongle-rt3070-on-the-raspberry-pi/
that it is enough to download rt2870.bin (the firmware for my chipset RT5370)
and deploy it into /lib/firmware. I recommend to obtain the newest one via git clone http://git.kernel.org/pub/scm/linux/kernel/git/firmware/linux-firmware.git
Firmware files are independent on Linux flavours.
There is a small problem that ‘/lib/firmware’ is readonly but it can be easily workarounded: cp -a /lib/firmware /root
mount -o bind /root/firmware /lib/firmware
In my case ZeroShell is run under VirtualBox 4.3. And the USB dongle is very unstable.
I am seldom able to connect do AP. But I succeded both on Linux (x64) and Windows 7 (x86) hosts.
The first time I succeed only half an our so be patient.
I have the same problem with stability for 3G USB modems. VirtualBox has problems with USB support.
Also be carreful passing the password for WPA (under wifi-manger) because it is required to pass a password key (hex) instead of a password string.
It can be simply obtained via wpa_suplificant.