Anyway, I started the install and this time everything detected properly. This is strange though, because at first Kboot wasn't working because it was the older version like you were saying.
Thanks for the help! I can't wait to take my turn now at tearing this apart, in fact working on some custom .pup files for down grading fats with firmware version beyond 3.21.
I actually was using petiboot. A funny thing happened though, I reformatted to try again, but this time with removing the USB flash drive before reboot and it worked! Strangely enough I came to a promote with the petiboot penguins and a Kboot promote (WTF!?).