I was able to boot to diagnostic mode by putting ENABLE_DIAGS on the USB Drive. Then in the "Exit, Reboot or Disable Diags" menu there is an option to exit to a Login Prompt. I selected that and now my serial port has a root shell booted from the diagnostic partition.
[root@kindle /]# mount
rootfs on / type rootfs (rw)
/dev/root on / type ext3 (ro,noatime,nodiratime,data=writeback)
proc on /proc type proc (rw,relatime)
sysfs on /sys type sysfs (rw,relatime)
tmpfs on /dev type tmpfs (rw,relatime,mode=755)
tmpfs on /dev/shm type tmpfs (rw,relatime)
devpts on /dev/pts type devpts (rw,relatime,gid=5,mode=620)
tmpfs on /var type tmpfs (rw,relatime,size=0k)
/dev/mmcblk0p3 on /var/local type ext3 (rw,relatime,errors=continue,data=writeback)
/dev/loop/0 on /mnt/base-us type vfat (rw,noexec,noatime,nodiratime,fmask=0022,dmask=0022,codepage=cp437,iocharset=iso8859-1,shortname=mixed,utf8,errors=remount-ro)
fsp on /mnt/us type fuse.fsp (rw,nosuid,nodev,noatime,user_id=0,group_id=0)
I am glad that I refrained from making root partition changes before backing up mmcblk0p1, so I do not have to ask for a copy from another Touch owner. My recovery procedure looks promising at this point.
I have some Christmas shopping to do now, so I will continue this recovery later.