As far as the continuous reboot prob goes...hell just gettin' out of the "...can't flash properly..." issue goes...
removing the battery, inserting the power and usb cable then inserting the battery with home key and power button depressed should then show "found device n810" on the update wiz and then allow you to reflash using windows xp (possibly win7 too).
And I really reallly reallllly suggest using the proper NIT software update wiz for windows(remem. to use compat. mode for the wiz on win7)....it works the best prob. free for flashing using a windows host pc.
Connecting the device first and then putting the batt in ...should give the old girl the electroshock therapy she needs to jumpstart her properly.

Possible causes for continuous reboot are...
1-updating busybox can do it. Older versions of maemo-mapper, and mweather. The RSS reader can also do it. It can get stuck in a loop trying to download updates to certain software on bootup (before it has a network connection)
2-Happens consistently when switched off when running on battery and switched on after being plugged in. Doesn't happen if the charging icon appears.
3. Has not happened prior to additional software being installed. installed RDesktop, Slypheen and xterm. (Others have mentioned xterm as being a possible cause of the problem)
4-some have confirmed osso-xterm 0.13 was installed both times it exhibited the looping reboot syndrome.
5- device also reboots sometimes when transferring files around
etc.
These are allllll probs relating to continuous reboot issues with the older chinook firmware.

The only time I personally ever had the prob with continuous reboot with diablo... I narrowed down the culprit to the n810 charger...tried using an n800 charger (blockish looking charger) and used another battery...as well I cloned the os to external micro sd card and then upgraded the os ...asui, cssu, and upgraded to diablo turbo.
Never ever ever ever ever had a single continuous reboot prob since.
I do believe that the older firmware (chinook) while being great and all...didn't have the patches, tweaks and fixes that kept it sharp and prob free from buggy loops that could undermine the system in a varied number of ways and crop up consequently after doing or installing something/things or having just the perfect set of conditions battery-charge-wise.

After you proper reflash with n810 diablo.
I suggest immediately downloading rootsh, penguinbait's console tools v1, etc..., and grab your micro sd card and clone your os over to it, boot into it and continue with the upgrades towards having proper asui, cssu, and diablo turbo installed ...
there are lotsa write-ups around for it...
I did a couple pretty comprehensive ones meself even.
good luck...
tell me how it goes...
and if you need to puzzle through something just shout.
Me or someone else will surely hear and try to help.