How to create a build
How to make your build work with this
So it actually isn't that
Extract your sqsh to a folder somewhere, so you have, say /android/system
Mount/extract whichever rootfs worked best with your system somewhere else, say /android/rootfs
cp -a /android/rootfs/init.etc/* /android/system/etc
cp /android/rootfs/lib/donut/* /android/system/lib
cp /android/rootfs/lib/modules/* /android/system/lib/modules
cp /android/rootfs/lib/hw/* /android/system/lib/hw
cp /android/rootfs/init.cfg/init.donut.rc /android/system/sysinit.rc
You'll need to modify the sysinit.rc a bit, as in the rootfs some things are commented out that shouldn't be, and it references a few things in /bin or /etc that aren't there anymore.
Also, don't forget to uncomment the line near the top of sysinit.rc that creates a symlink from /system/etc to /etc
Once you are done, just do this to create the installer:
tar cvf androidinstall.tar system
Soon, I may upload some packs for making the process easier, with updated sysinit.rc's for each system type. If I have time, we'll see...
Note, you can update the contents of the .tar file from windows/izarc/winrar/etc and it'll still work. you don't need to keep messing about with linux anymore if you don't want to