@wholycow-
Just to clarify:
1- Jailbreak
2- Sideload update_linkss_0.16.N_install_touch_pw.bin (not update_...._pw2.bin)
3- do 'update my kindle' via menu>settings>etc. No USB cord.
4- at this point you should get a screensaver saying that the hack worked (don't recall what it looks like). If you don't see this, then something is wrong with your install. If you get NiLuJe's default screensaver, all is working and go ahead and add your custom screensavers and then do a restart via menu>settings>etc without a USB cable. If things don't work at this point, it is probably a problem with your custom screensavers.
Good luck!
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