EDIT: Finally got it to work, see answer below for a complete guide on how to make this thing work starting from scratch
I have a PL2303HX cable connected to the GPIO on 5V GND RXD TXD and it IS working but not completely.
When I boot the Pi I can see the boot messages on the screen right up until it displays the following line:
[ 20.973184] IPv6: ADDRCONFink becomes ready
After that the console goes silent. I am able to login via SSH over the network so the Pi did boot properly. If I issue a reboot command it takes a few seconds and the TTL console eventually shows up a bunch of shutdown messages and then it displays the boot up process until the same IPv6 line again.
So what is going after the network is brought up that could cause this problem?
There was some customization done to this raspbian install but nothing special, a few packages, some sshd configuration, allowed tt1 login to root only.
But I dont even get to the login screen so I dont think that is the issue.
EDIT: I added the following line to /etc/inittab
2:23:respawn:/sbin/getty -L ttyAMA0 115200 vt100
And it started working a little more but its not yet usable. I get past the IPv6 line and end up to what appears to be a login prompt but a lot of characters are missing. When I type only 2 or 3 letters will appear then i cant type anything. I press enter, nothing. Then, half the login prompt appears again.