To clarify, I am experiencing identical problem as computer_freak_8.
Cannot find anything at all (elsewhere on the web) about this further
complication after fixing initrd.gz.  From my observation and other info
I have found, it appears to be after the kernel finishes it's work, and
boot scripts begin to run--purely a guess, I'm still pretty new to
linux.

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[hardy] livecd: keyword "persistent" results in busybox and (initramfs)
https://bugs.launchpad.net/bugs/219192
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