Zaerc, Thanks for the link saying that default root passwd is not set. It helps to know which symptoms are anomolies. I had to chroot and set root password and then I could proceed.
And thanks for your solution to the dpkg-scanpackages issue. I ran it from the core as you suggested.
I also had success with the apt-key add, and dpkg-scanpackages command is not found on the MD.
But I had a problem with /usr/pluto/deb-cache reporting as read only (though mount shows it as rw) and it's not an issue since we can run it from core.
On the MD, apt-gt update did run without error with the apt-key add and the Packages.gz created on the core
But apt-get dist-upgrade had the same error as earlier with the twofish conflict.
Authentication warning overridden.
Extracting templates from packages: 100%
Preconfiguring packages ...
(Reading database ... 111857 files and directories currently installed.)
Preparing to replace linux-image-diskless 2.6.27-11-generic-lmce1 (using .../linux-image-diskless_2.6.27-14-generic-lmce1_i386.deb) ...
Unpacking replacement linux-image-diskless ...
dpkg: error processing /var/cache/apt/archives/linux-image-diskless_2.6.27-14-generic-lmce1_i386.deb (--unpack):
trying to overwrite `/lib/modules/2.6.27-14-generic/kernel/arch/x86/crypto/twofish-i586.ko', which is also in package linux-image-2.6.27-14-generic
dpkg-deb: subprocess paste killed by signal (Broken pipe)
Errors were encountered while processing:
E: Sub-process /usr/bin/dpkg returned an error code (1)
Anyone have any thoughts as to why twofish is conflicted?