Ok, I can answer a few of my own questions now. It lives, so I'm ridiculously happy.
Why didn't it work?
It was a printing, wiring error. My printer ran out of blue ink, and missed one connection off the circuit diagram that I had printed out. Since this was D4, it was pretty important, and without it you just get blocks.
Does it work with the latest Arduino IDE 0022?
Yes, I think it does, though I haven't installed mine yet. Presumably code space is tight with the ATmega125, and not with the 328. This should be documented somewhere obvious..?
The disconnected pins, D0,D1,D2 and D3 should be left disconnected.
The system doesn't need VSS or INJ inputs to work, ie display stuff.