It appears as though I am experiencing the same or a similar issue. I have been attempting to create a patch that installs a single .deb, however installation of the patched .iso halts at the (initiramfs) prompt.

I came across this thread and have tried the fix suggested here without any success. I noticed originally that there were some error messages in relation to the locale. I found another thread which suggested changing the locale to en_GB, which I did. After that I no longer received any error in relation to the locale.

I have now created a very basic patch that does little more than change the hostname in the conf file.

HOSTNAME=testhost
# set hostname
echo "$HOSTNAME" > /etc/hostname
sed -i "s|127.0.1.1 \(.*\)|127.0.1.1 $HOSTNAME|" /etc/hosts

This patch has been applied to the turnkey core. The output of that operation is:

david@david-desktop:~/dev/tklpatch$ sudo tklpatch turnkey-core-2009.10-2-hardy-x86.iso testpatch
# extracting root filesystem and isolinux from ISO
Parallel unsquashfs: Using 2 processors
21074 inodes (21402 blocks) to write

[========================================================================================================================================/] 21402/21402 100%
created 19196 files
created 2167 directories
created 1450 symlinks
created 41 devices
created 0 fifos
TKLPATCH_ISOLABEL: testpatch
# applying patch testpatch
# applying overlay testpatch/overlay
# executing config script testpatch/conf
Adding `local diversion of /sbin/initctl to /sbin/initctl.distrib'
# chroot execute: /tmp/tklpatch/conf
Removing `local diversion of /sbin/initctl to /sbin/initctl.distrib'
# preparing cdroot
Parallel mksquashfs: Using 2 processors
Creating 4.0 filesystem on turnkey-core-2009.10-2-hardy-x86.cdroot/casper/10root.squashfs, block size 131072.
[========================================================================================================================================\] 19911/19911 100%
Exportable Squashfs 4.0 filesystem, data block size 131072
	compressed data, compressed metadata, compressed fragments
	duplicates are removed
Filesystem size 104425.84 Kbytes (101.98 Mbytes)
	40.61% of uncompressed filesystem size (257125.95 Kbytes)
Inode table size 225271 bytes (219.99 Kbytes)
	29.68% of uncompressed inode table size (758965 bytes)
Directory table size 222912 bytes (217.69 Kbytes)
	46.97% of uncompressed directory table size (474605 bytes)
Number of duplicate files found 1132
Number of inodes 22854
Number of files 19196
Number of fragments 1228
Number of symbolic links  1450
Number of device nodes 41
Number of fifo nodes 0
Number of socket nodes 0
Number of directories 2167
Number of ids (unique uids + gids) 20
Number of uids 6
	root (0)
	man (6)
	dhcp (100)
	syslog (101)
	messagebus (103)
	news (9)
Number of gids 18
	root (0)
	kmem (15)
	disk (6)
	tty (5)
	shadow (42)
	david (1000)
	bin (2)
	scanner (104)
	utmp (43)
	nvram (105)
	staff (50)
	dhcp (101)
	src (40)
	fuse (106)
	ssl-cert (107)
	adm (4)
	news (9)
	mail (8)
# generating turnkey-core-2009.10-2-hardy-x86-patched.iso
Size of boot image is 4 sectors -> No emulation
  8.77% done, estimate finish Fri Sep 24 15:05:43 2010
 17.55% done, estimate finish Fri Sep 24 15:05:43 2010
 26.30% done, estimate finish Fri Sep 24 15:05:43 2010
 35.08% done, estimate finish Fri Sep 24 15:05:43 2010
 43.83% done, estimate finish Fri Sep 24 15:05:43 2010
 52.60% done, estimate finish Fri Sep 24 15:05:43 2010
 61.35% done, estimate finish Fri Sep 24 15:05:43 2010
 70.13% done, estimate finish Fri Sep 24 15:05:43 2010
 78.88% done, estimate finish Fri Sep 24 15:05:43 2010
 87.66% done, estimate finish Fri Sep 24 15:05:43 2010
 96.42% done, estimate finish Fri Sep 24 15:05:43 2010
Total translation table size: 2048
Total rockridge attributes bytes: 1810
Total directory bytes: 4574
Path table size(bytes): 40
Max brk space used 0
57053 extents written (111 MB)

This seemingly basic patched iso still fails to install, halting in exactly the same place. I'm not sure what to do next to get this working.