If I recall the initial bootstrap always needs to live on the SD card.
There was a post on this and the instructions on line...
Check the archives.
I am running from a USB hard disk with external power.
I booted a basic Ubuntu image on my SD card and did a minimum apt-get
update/upgrade
Next a controlled halt.
Then on a linux machine I mounted then copied the contents of the
second partiton
to my USB disk. Next I labeled my USB filesystem.
Then then I mounted the first partition (FAT) of the SD card and after
making a copy edited the boot line
to use LABEL=mypanda01 to match the label on my USB device.
unmounted all the bits, unpluged, moved back to the panda board and
applied power. Before growing the filesystem make sure you have a swap
partition. If you forget swap to file works fine.
There was a post on this and the instructions on line...
Check the archives.
The key for me was to start with a SD card image that worked.
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T o m M i t c h e l l