Thanks for all the suggestions guys. I used the same lv2diag.self file for a couple of regular downgrades and I'm using the same hardware to do it all too.
Steps taken again...
Performed Flash Fun downgrade, as I had pre-soldered the SBE and Tristate. (already tried normal e3 downgrade method with the e3_downgrade bin - same results.) e3flasher.log file said "OK. Program Nor OK"
Put in downgrade Dongle with downgrade bin.
Power + eject
Dongle Boots. Red lights, then green. Shuts down automatically
Insert USB stick with Lv2diag.self and pre-patched 3.55 bin file.
USB Flashes in a good way, so does the PS3 hd light. The data light on the esata station comes on.
Maybe 20 seconds in. The data light on the esata station goes off, the hd light goes off, and the USB light stops flickering.
Aaaand it just sits there... and sits there. After half an hour, I pull the USB stick, check the log that's been written, and it's just an empty file...