For what it's worth, I was seeing the exact same problem you described.
I even loaded up two different servers - one from the normal server
distro and added this package and the other from the alternate CD and
picked the LTSP server mode.  Both were failing.   By removing "quiet
splash" like the one person suggested above, I found that I was getting
a crash in init and showing that it was trying to use an IP address as a
variable where it shouldn't be.   (this came right after udhcp was
running)   Turned out, that address it was sticking in there was from
where I define TWO ntp servers on my dhcp server.  By changing the
individual entry to just  have ONE address after "options ntp-servers",
the problem went away and I was able to boot up the terminal.

Dunno if that might be the case for you too or not, but that sure fixed
it for me.  Not sure which package that problem would be with or I'd
file a bug report on it...   We shouldn't be limited to one ntp server,
I don't think.  (unless I missed that in the RFC somewhere...)

-Ken

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LTSP thin client failure to boot
https://bugs.launchpad.net/bugs/528233
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