I posted this over at Pre Central (my account name there is jovo55) and figured I should post it here also for everyone at XDA.
I think I might have solved the problem.
I followed the instructions in the OP and was still getting the error when trying to register a new webOS account even with Impostah. I decided to just play around with Preware and Impostah and see what stuff could be done to the touchpad. While doing so, I think I figured out how to get Impostah to register a webOS account on a demo touchpad.
These are the steps I did:
1. Follow the steps in the OP exactly. (Thanks bluepoint951)
2. When you reach the point that Impostah fails to register your new webOS account reboot your touchpad. (See OP for reboot instructions)
3. Open Preware and add the testing feeds for the touchpad (armv7) (Instructions here: www(dot)webos-internals(dot)org/wiki/Testing_Feeds ) *Sorry but xda won't allow me to post the hyperlink*
4. Tap Preware menu in top left corner and then choose "Update Feeds".
5. After feeds update, tap the magnifying glass at the top right.
6. Search for "Device Profile Service Override" (without the quotes) and install.
7. After install reboot your touchpad again.
8. After startup run Impostah again and activate a new account.
That's it. You should now get a successful activation with Impostah. You'll now have full access to the HP App Catalog and everything else that comes with having a webOS account.
I hope that helps everyone out. If you have any issues still, post them. I'll try and help.
Good luck everyone.
-Jovo55 (aka mplacido9 at xda)