If you were able to format with 3.2 with a 1 meg memory card, but not 2 512 cards, i'd suspect you have a problem with one of the 512 meg cards; marginal ram perhaps (or card order). glad it works with the 1 meg board, though... I don't recall any back doors into finding root passwords; we did get that question, but reformat and reinstall was our answer. The first think I'd do would be to look at the voltages directly on the cards with a scope and make sure they meet spec... Don't forget -12V.
The TBs always supersede the info in the Service Manuals. SMs came out with the product (well, usually), to get the field techs off to a good start, but the SMs were rarely updated, or errata produced. The TBs and N&J is where to go for definitive info. Also, If a mod applied to one machine is not called out in the TBs for another similar, than it doesn't apply, e.g., Mod 12 mlb mods applying to Mod II cpu pcbs...
Also, check N&J for card order. This is important and I don't recall the proper order at the moment, but it's in N&J. Wrong order is enough to cause all sorts of things to not work.
Card cages go bad, too. Parts stocked the backplanes and there was use on them.
Frank did not write any Technical Bulletins or any of the Technical Support documentation, like the XENIX Information series of booklets. We were all young, gearheads, and you had to have a sense of humor to work with this equipment--maybe we all sounded alike.