After deleting the build and distro directories I tried another make and 
encountered two problems:

During the initrd building, the building of makedev failed due to the compiler 
being -Werror and system() return value being ignored. I got past that with 
the following patch. I'm sure this should rather be fixed elsewhere.

charles@qcore:/opt/balloon/build/initrd/buildroot/build_arm/makedevs$ diff -u 
makedevs.c~ makedevs.c
--- makedevs.c~	2010-04-08 08:55:31.000000000 +1200
+++ makedevs.c	2010-04-08 08:56:56.608535407 +1200
@@ -364,6 +364,7 @@
 	char *line = NULL;
 	int linenum = 0;
 	int ret = EXIT_SUCCESS;
+	int syserr;
 
 	bb_applet_name = basename(argv[0]);
 
@@ -528,7 +529,7 @@
 	}
 	fclose(table);
 
-	system("/bin/sync");
+	syserr=  system("/bin/sync");
 
 	return 0;
 }

With that we get past initrd but rootfs build then fails with.

 '[' -f ../../../build/rootfs/emdebian/emdebian-grip-rootfs/etc/apt/sources.list ']'
+ cd ../../../build/rootfs/emdebian/emdebian-grip-rootfs/dev
+ ln -sf urandom random
+ echo balloon
+ echo '127.0.0.1       localhost.localdomain   localhost'
+ echo '127.0.1.1       balloon   balloon'
tar: ./lib/firmware/mts_edge.fw: Cannot open: Not a directory
tar: Exiting with failure status due to previous errors
make[2]: *** [../../../build/rootfs/emdebianrootstrap.tgz] Error 2
make[2]: Leaving directory `/opt/balloon/trunk/rootfs/emdebian'
make[1]: *** [all] Error 1
make[1]: Leaving directory `/opt/balloon/trunk/rootfs'
make: *** [all] Error 1

I really don't want to spend hours debugging all this building and I wonder 
whether there is somewhere where I can just download a fresh set of 
consistent bunch of binaries that work. All I really want to do is hack on 
kernel/yaffs.

-- Charles