I've slightly improved the topic starter's jailbreak for 3.2.1 FW. It seems not to require strange games with timings and folder renaming amymore. I've tried it on my wife's Kindle 3 Wi-Fi, which came with 3.2.1 firmware a month ago and it seems to get installed OK.
It still exploits the backslash character processing to run the custom installation code.
Thanks to Yifan Lu for original jailbreak and Sir Alex for extracting otaup from the device.