I feel quite sheepish. In the previous post I described a problem of the Ubuntu 5.10 kernel booting the initrd, but the 6.06 kernel not booting it. Well after a break of a couple of days from the problem, I found the answer in under 10 minutes. the 5.10 kernel has ext2 support built into the kernel whereas the 6.06 has it built as a module. A recompile of the kernel with ext2 support built in allowed the system to boot.
After talking with my friend Andrew, I decided to look into booting a more or less standard initrd that downloaded the real rootfs and mounted that. This is when I came across squashfs. Squashfs creates a compressed readonly filesystem which is fast and compact. In conjunction with unionfs, it is possible to use squashfs as the rootfs by creating a ram disk for the purpose of storing the changes that will happen on the read only squashfs. This will provide for a smaller memory footprint allowing for less memory requirements and/or more available applications.
As a sidenote, I've done a lot of reading and searching on the Internet about diskless nodes in cluster settings, and it seems that most if not all have a dependence on a file server for the node operation. While the overall design of the web cluster called for an external storage solution, which would hold the actual website content, it would be possible to place the website within the squashfs image, thereby removing the dependence on an outside source for operation.