I see in your init.rc that you start the console service with:
service console /system/bin/sh
In my (later) eclair and froyo roms I always use:
service console /system/bin/busybox sh
This makes busybox the shell and gives me the option to type, for example,
"ls -lart" instead of "busybox ls -lart"
or "tail somefile.txt" instead of "busybox tail somefile.txt"
or "dmesg" instead of "busybox dmesg"
or "grep ..." instead of "busybox grep .."
Well, I assume you get the concept.
It saves a lot of typing. Not to mention the times you simply forget to type it
I modded your boot.img and replaced it there and it works just as well in CM7
(Note: I'm hvdwolf at archosfans)