don't bother with new squashfs it's a lot of work. I hope I'll trey to debug it 
this weekend, but today I could not dl the iso, it was very sloooow.
But if the fs is rw so it's only launchin nano is a problme there may be 
another thing to try if you are not bored yet :)
instead of editing the file run
 sed -i  's/xfdesktop&/xfdesktop/' /etc/xdg/xfce4/xinitrc

this should drop the & from the xfdesktop& line and hopefully sed does
not need ncurses or other libs that aren;t there

another approach is to chroot /root
and maybe in there nano will work
then exit the chroot and the init shell

thanks

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[gutsy] [beta] xubuntu panel pager missing
https://bugs.launchpad.net/bugs/138335
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