Ok I am felling noobish for the first time in a lontime but I have spent the last week or so searching and hacking on getting this to work.
I had multiboot installed, uninstalled it then installed backup menu, backed up everything and did an rsync for good measure.

Then I repartitioned the emmc to have parts 1-6
I have power kewrnel and stock kernel working

I have tried
ITEM_NAME="NITDroid 2.6.28.NIT.07 split"
ITEM_KERNEL="uImage-2.6.28-nit07"
ITEM_MODULES=ext3
ITEM_CMDLINE="rootdelay=10 root=/dev/mmcblk1p5"
ITEM_OMAPATAG="1"
"
and many other nothing mounts root

This is more a question for NIT thread, but I guess you missed the ITEM_DEVICE and/or CMD params.

Here is my (working) item config file
, as already posted before.
Kernel image (here named uImage) needs to be present in / of specified device (0p5).
Do not forget to run u-boot-update-bootmenu!

But after reading again, you may have only misspelled CMDLINE.
Try Depending on what version of u-boot you are using and why your ITEM_KERNEL already points to a uImage (u-boot-update creates uImage from zImage for you in Mydocs/bootmenu.img.d)

I was using uboot version 2012-04 previously. All the kernels default/KP51/omapfb/arch was working correctly. I upgraded to 2012-10.rc3 and now I can only boot the attached kernel. I changed the KP51 item config file to use OMAPTAG and ran u-boot-update-bootmenu but still I cannot boot any other kernel other than the one attached with u-boot.

After this, I un-installed u-boot, re-installed it and and re-installed power-bootimage (KP51) but the situation is same. On booting any other kernel the device shuts down after the message "Starting kernel".

OMAP FB kernel gives the following error before shutting down.

Uninstall (preferably with 'apt-get purge...') all u-boot versions.
Reflash stock kernel, preferably with USB + flasher-3.5. This will return you to a clean state, where you can install u-boot again, following carefully the first post in this thread

And (maybe) set up your config files correctly (see OP), as I have seen that the one for NIT was not correct.
Or just omit CMDLINE param for stock/power kernel...

Uninstalled U-Boot version 2012-10.rc3 Flashed KP51 kernek re-installed. Same error.

Purged U-Boot reverted back to U-Boot 2012-04. mkimage error during u-boot-update-bootmenu.

Console output below -

Nokia-N900:~# u-boot-update-bootmenu
Default bootmenu entry is '/etc/bootmenu.d/20-Maemo5-KP51.item'
Adding bootmenu entry for: Internal Nand

Configuration file: /etc/bootmenu.d/10-Maemo5-2.6.28-omap1.item
Generating u-boot image for kernel 'zImage-2.6.28-omap1'...
Adding bootmenu entry for: 'Maemo 5 with 2.6.28-omap1'

Configuration file: /etc/bootmenu.d/20-Maemo5-KP51.item
Generating u-boot image for kernel 'zImage-2.6.28.10-power51'...
mkimage: Write error on /home/user/MyDocs/bootmenu.img.d/zImage-2.6.28.10-power51: Success
Nokia-N900:~#

Are you sure your MyDocs is writable at all?
This would explain your problems.

Yes MyDocs is writable. Just in case I also did a filesystem check before trying it out.

Although I tried manually copying zImage into /home/user/MyDocs/bootmenu.d/ folder and it gave an error. Elsewhere in MyDocs I can cut/copy stuff. Could it be that the permissions for /home/user/MyDocs/bootmenu.d/ have gone wrong ?

MyDocs is vfat, so linux permissions don't apply.

While you wait for help, maybe you could try out the previous u-boot at
http://atrey.karlin.mff.cuni.cz/~pali/u-boot/

I tried with 2012.04-1 and got the mkimage error I posted above. I did not test with 2012.04-2 because I read in the threads that it is not suitable for hw rev 2204.

Btw the command u-boot-update-bootmenu ... does it need to be run as root ?