Ok, started to integrate usb_serial into initfs. Got it working, just dirty (sometimes works, sometimes doesn't)

(Either use mkfs.jffs2 to do this on the computer or in diablo, remount /mnt/initfs/ rw)

1. In initfs, I needed to place g_serial.ko into /lib/modules/2.6.21-omap1/
x. Download http://qwerty12.maemobox.org/initfs/getty and place it in /sbin/

(initfs lacks getty so I was forced to compile busybox with only getty statically against uclibc) Binary is only 49KB anyway

2. Modify bootmenu.sh with this patch:
http://pastebin.com/m349c7c5d

Press the full screen button at the top when the bootmenu is open. It's a dirty method though to run getty and insmod g_serial though so a cleaner method would be nice

3: Updated usbser function:
http://pastebin.com/m6d2855e1

Much more cleaned up and now does not need getty (thanks to Stskeeps for pointing me to the method)