OK... so this is not perfect, but surprisingly usable. I've disabled the page-refresh-flash and cranked up the contrast, and my K3 (v3.1) is usable- if a little bit ugly.
I created a script, /etc/init.d/local that says
echo 19 7 > /proc/eink_fb/update_display
echo 1 > /sys/devices/platform/eink_fb.0/override_upd_mode
and from /etc/rc5.d, ln -s ../init.d/local S97local to start it at boot, but you could just type the echos from a shell to see the effect... It is in no-way permanent.
The "19 7" above sets contrast to an undocumented (very dark) setting, necessary to overcome the eInk - which has an almost mechanical latency to it and is too light otherwise. I found a pretty good bit of documentation, indirectly, in /opt/eink/scripts/diags.
I don't think Amazon will enable this as an option because there is a little bit of ghosting and overall ugliness to the display, but for me it works quite well, and the ultra-contrast actually makes many of my books easier to see in low light.
I've asked around to see if someone can help me get the eInk firmware from the new Nook STR (with it's proprietary anti-flash tech) to see if I can apply it to Kindle.
Just a quick update before this thread fades into obscurity (or someone actually releases something : ) to save you the trouble of reading this whole boring development thread... Essentially we succeed to disable the screen flash, and solution is very usable.
If you read up to page three, you'll find a few different algorithms to change the way the eInk updates; there are essentially 3 update sequences with various effects. I hacked it, seaniko7 did the first proof of concept and made a video - http://www.youtube.com/watch?v=VN5fd3iBsMA
Various ideas were tried, in my opinion the current winning solution is mobad's script at
Enjoy, and thanks everyone for participating!