I see 2 options:
1. Remaster Puppy into a compatible filesystem that your kernel supports.
2. Use an older version of Squashfs, I had luck compiling Squashfs 2.2 against stock 2.4.32 kernel before applying xbox linux patches.
http://sourceforge.n...m2/files/LBA48/ Yes, the sequence of applying patches matters. The xbox linux patch may fail at certain thunks and I manually edited the points of failure to merge in the changes.
When working on xdsl, I hit a wall with cloop and only one single version of cloop will compile cleanly with my patched kernel.
Good luck on your endeavours with Puppy.