We believe that your issue has been closed by the upload of
Version 0.99.12 of grml-terminalserver from Michael Prokop <mika@grml.org>.
The explanation is attached below

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Format: 1.8
Date: Tue, 07 Dec 2010 12:35:50 +0100
Source: grml-terminalserver
Binary: grml-terminalserver
Architecture: source all
Version: 0.99.12
Distribution: unstable
Urgency: low
Maintainer: Michael Gebetsroither <gebi@grml.org>
Changed-By: Michael Prokop <mika@grml.org>
Description: 
 grml-terminalserver - terminalserver for grml to boot via PXE
Changes: 
 grml-terminalserver (0.99.12) unstable; urgency=low
 .
   [ Ulrich Dangel ]
   * [fdea9e5] Support grml-terminalserver from no boot medium present.
     [Closes: issue733]
   * [162ecbe] Use config files instead of globbing, adjust indention.
   * [9ac3854] Adjust live-media-path if /live/image is not the
     bootmedium.
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Pending in grml-terminalserver.git branch mru/issue733 (thanks to Uli), any 
objections against merging that branch into master and releasing it?

grml-terminalserver should copy the relevant files from /boot. mika told us that 
they are perfectly fine.
(grml-small does not ship kernel/initrd in /boot, but also does not ship grml-
terminalserver)

Even if we had grml-api, live-initramfs currently does not copy over the /boot 
files for the grml2ram case. ATM I'm not comfortable breaking scripts/live 
though...

Removing the release-stopper tag, we should fix this as part of the upcoming 
grml-api work.

Credits for bugreport to Ralf Moll:

Boot grml 2009.05 with 'grml2ram' and then invoke 'grml-terminalserver'.

Error message:

Creating initrd /etc/grml/terminalserver/minirt26.gz:
cryptsetup: WARNING: could not determine root device from /etc/fstab
WARNING: (loop-aes) Could not determine root device. Skipping.
W: mdadm: /etc/mdadm/mdadm.conf defines no arrays.
W: mdadm: no arrays defined in configuration file.
... done
install: cannot stat `/live/image/linux26': No such file or directory
PANIC: problems executing ( install -m 644 /live/image/linux26 /var/lib/
tftpboot/linux26 ); ret(1)
[1]    6501 terminated  grml-terminalserver
grml-terminalserver  4.17s user 28.99s system 51% cpu 1:04.99 total
143 root@grml ~ 

Additional information:

root@grml ~ # ls /live/
cow/  image/
root@grml ~ # ls /live/cow
boot/  etc/  home/  live/  mnt/  root/  tmp/  var/
root@grml ~ # ls /live/image
grml.squashfs*
root@grml ~ #