Yeah, pretty much done everything possible boot-wise. The folks as macosxhints.com say:
After messing about trying to get SMB sharing to work with Windows XP, I had restarted SMB services several times (using a third-party Samba prefspane and config tool). I eventually rebooted the machine and got that awful feeling after seeing the #sh blah blah prompt scrawl itself over my Jaguar boot screen.
It turns out that Samba has a penchant for deleting and replacing the /etc/hostconfig file. Fortunately, I had found out this information beforehand following a similar incident last week after I'd spent two days trying to fix everything. This time, however, I had partitioned my drive and had an OS 9 disk to boot from. Using FileBuddy, I renamed /etc/hostconfig.old to /etc/hostconfig, and the computer booted into X fine.
It seems bizarre to me that the absence of this one file can cause OS X to totally fall on its face in this way. Now potentially this could happen when the system is interrupted doing anything which rewrites this file, I suppose. That might include changing any Network Settings or turning off and on any sharing options.
So just in case you do ever get that nasty prompt and the sinking heart feeling try to get onto your drive and see if the hostconfig file exists. It might just save you a bit of time.
[robg adds: This is a particularly nasty effect. I tested it on an iBook 500 (creating a backup of hostconfig first), and sure enough, delete hostconfig, and the system is unusable. You can't even boot into single user mode. Well, you can, but you can't do anything useful like replace the hostconfig file. I booted the iBook in FireWire target disk mode from my desktop Mac, restored the backed up hostconfig, and then rebooted the iBook. All was fine. I'm not sure how you'd recover a machine that lacked OS 9 or another machine to boot it with -- thoughts?]
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I tried some follow up suggestions, but nothing has worked.
I'm going to try booting in 9, re-formatting and re-installing...again!
Thanks,
Tim