Well, I found the answer and I don't like it. It seems that you can't specify the same physical device for the location of the persistent home directory and for the location of the partition to use when running from hd. I had:

tohd=/dev/hdb2 and
home=/dev/hdb2.

When I changed to

home=/dev/hda1 it worked. There was never a warning or error message when setting these up.