Make sure to edit kloader to say crtmode=NTSC root=/dev/hda1 ro (or PAL if you use that, or dtv or whatever you use, NTSC or PAL will be good defaults. If it works, leave that alone)
This worked for me. /dev/hda1 is partition 1, from what I read this is your root file system (the main part) and is what is used to boot linux from the hdd. You can do this through Edit Kernal Parameters.
The difference is only one line:
umount / mnt/sda1
umount / mnt/hda2
umount / mnt/sda1
umount / mnt/sda3
init_install_hdd.sh unmounts (umount) /mnt/hda2, your swap partition, while init_install.sh unmounts /mnt/sda3, which I think is your usb drive being used to install linux. Both unmount /mnt/sda1, which is your usb drive, mine only has 1 partition, not 3 as yours seems to have according to the script (sda3 is sda partition 3).
As far as I can tell, you only need to do 1 or 2 more things:
1. Disable initrd (choose initrd>disable (or none).
2. Remove ramdisk from Kernal Parameters and replace with root=/dev/hda1 ro (there is a space between hda1 and ro, lowercase letters). Deba5er may specify different commands, follow his advice over mind, but this should boot from the HDD. It may seem to hang at some points, just leave it be, it will eventually boot.
Sometimes my console will not power off, sometimes it will, just depends on its mood I guess.
The error message you posted contains some typos, not sure if it was you or that is actually what is there, but if it is, deba5er needs spell check on his advice for commands lol =X # Mount-n-o renount, rw / should be # Mount-n-o remount, rw /
Once it does, please post a video on youtube of you running naked in the streets, and please yell deba5er is the shi-...well whatever you want lol.
SCPH-39001 V7 GH-019, fliptop case, FMCB 1.8, 80GB HDD (SMS console) 16MB card running it all
SCPH-39001 V7 GH-022 FMCB 1.8, 120GB HDD (Game console) 64MB card running it all