Colin, my apologies for my late response. I found some time to play with iSCSI again and used a fresh setup with final Ubuntu 9.10 server, without much issues.

The problems i had appear to originate from the date Ubuntu 9.10 was still in RC-phase; even after upgrading them as the final came out. I just setup a completely new Ubuntu 9.10 server final iscsi install and the initrd.img and vmlinuz written to the iscsi filesystem are indeed usable and work for me. The problem as eymey explained, is getting that initrd.img and vmlinuz (2 files) to the TFTP server used for booting. I'll file a separate bug on that, as you requested.

I simply used an initrd i already had to boot the system, then copied the /vmlinuz and /initrd.img files (which are symlinks and kept up-to-date to the currently installed kernel/initrd.img) to the TFTP server which pxelinux reads before the kernel is even started. An interum workaround would be to put the initial two files of a blank installation somewhere on the ftp server. I don't know about the 'dynamic' creation of that /etc/iscsi/iscsi.initramfs file though. I booted with an initrd from a different system, which would need to have different data in that file, and it still worked. Possibly because its dynamically generated when booting as it gets the data from pxelinux.cfg file which gives all iscsi information, snippet:

  APPEND ip=bootp root=/dev/sda1 iscsi_initiator=X iscsi_target_name=X iscsi_target_ip=X iscsi_target_group=1 iscsi_target_port=3260 iscsi_username=X iscsi_password=X initrd=/tftp/initrd.img
(removed actual data by X for privacy)

I believe this data is used to generate the /etc/iscsi/iscsi.initramfs file dynamicaly/automatically when the script activates upon boot. 

I then upgraded using sudo apt-get update followed by sudo apt-get dist-upgrade, and could copy the 2 files to my remote server again, and booting worked fine. I created a small script i could run everytime after installing ubuntu updates that involve kernel/initrd changes. I simply run ~/updateiscsi and its copied to my remote server. So, i do not have to generate an initrd each time after upgrading; thus the auto-generated initrd.img is fine when using ubuntu 9.10 final.

So while it works, there are lots of rough edges:
- How to initially boot after installing; you need the initrd.img and vmlinuz files on the iscsi system but you can't get to that easily.
- After updating you need to manually synchronise your vmlinuz and initrd.img files to the TFTP server used for booting
- /etc/rc0.d and /etc/rc6.d hacks are still required for clean shutdown on iscsi-on-root systems
- /etc/network/interfaces must be manually created and set to static ip configuration; it doesn't appear to pickup the gateway information from the DHCP server initally
- If any local disks are present which you may or may not want to use as additional storage - not as root/system filesystem for Ubuntu - you need to change the pxelinux.cfg file to set root=/dev/sdb1 (for 1 local disk present) or to root=/dev/sdc1 (2 local disks present). Using UUIDs here probably won't work. Ideally, we would want a script that automatically checks which of the /dev/ entries is an iSCSI disk; and use that one automatically without requiring this parameter.
- As already talked about; only the server ISO allows iscsi-installation, not the alternative or desktop ISOs. I hope in the future, Ubuntu will be able to provide a 100% user-friendly ubuntu-on-iscsi installation without any hassle, without using the server install. My suggestion is to get the server install method to work 100% ok, and then work on improving the graphical installer in the desktop ISO. I strongly advise this course of action, since thin-clients are becoming very popular and it would be great if Ubuntu could contend in this area.
- Lack of any official / usable information on Ubuntu-on-iSCSI.

A lot of different issues with different solutions, to make diskless ubuntu systems easier to setup and use. I do have some ideas/suggestions for that, but do you want this to be a "master bug" and me to file separate bugs on specific issues? Or do you want to close the bug, because my initial problem with initrd.img files not booting, is now resolved/invalid? That issue was when i initially used the initrd.img file on a normally installed system, which did not include any additional stuff for iscsi. So while the intended support for iscsi does appear to work in Ubuntu 9.10 server final, it could be made much more user friendly and hassle-free by automation, which is a feature/enhancement request i guess. Please tell me how you like to move forward with this new feedback.