Fixed the boot process!
You can now take my init.thunderg.rc and init.thunderg.usb.rc files and remove the custom init.rc file. All the new CyanogenMod root / adb permissions work.
note for the future: to use apps which need root, or to use adb as root you'll need to enable this in Settings --> Developer options --> Root access
. If you try to use the 'adb root' command it'll fail and tell you to change the setting above.