After many, many attempts, I successfully flashed the 21y kdz this morning. Thanks to Core Memory, Overground, enyahs and many others. I am not sure what finally "did it" after many tries, but I will share some notes.
1. Keep at it. I was ready to give up many times, but somehow hung in there.
2. I used XP. I did not try some of the methods folks have suggested for using virtual machines or win7.
3. I flashed stock recovery first.
4. I was coming from Tsugi, but after numerous failures, I reflashed CWM in and restored a stock gb nandroid. I don't think this was important to my eventual success, since it still took many tries, but at least I eliminated one variable.
5. At first I used the KDZ_FW_UPD_EN program from speedsk8x, following his instructions. Specifically, I used the CDMA and DIAG settings. This failed repeatedly. The program seemed to get stuck at "CDMA: wParam = xxx, lParam = yyy" I cannot remember the xxx or yyy, but the numbers would not cycle as speedsk8x's instructions said they would. I waited up to 10 minutes multiple times. Later, I tried again using the "3GQCT" and "EMERGENCY" setting with no success.
6. I then tried the method from this post. That did not work either. Multiple attempts. The VB script seemed to work fine, but the UpTestEX_mod2_marwin.exe program would consistently crash just as the flash process was nearly completion. I tried mutiple USB ports. I did not try a different USB cable.
7. Finally, I started to experiment. I finally tried the "Start Upgrade" button instead of the "Normal web upgrade test" button. The area beneath the button logged very similar steps as the KDZ_FW_UPD_EN method, but wParam and iParam did cycle from 1 up to 100. Finally after 100 my phone rebooted. About phone showed 21y with the new baseband and 2.3.4.
8. Interestingly, UpTestEX_mod2_marwin.exe never "completed." But since the phone seemed rebooted and working fine, I unplugged the USB and closed the program. Phone is working fine. Better than fine, so far. I flashed kwes's rooted 2.3.4 ROM, deleted some bloat, and the phone is functioning great. Everything seems to work and is snappy. GPS locked immediately (used to take 1-5-forever minutes).