Since that's optional in the latest hijack, try turning that off and seeing if you can get a 9600bps shell. Remember you have to reboot the player after changing that hijack setting.
In the config.ini I have car_rate=9600 set, I set hijack to give the player control of the serial. This is in car thru the sled, no mode forced hijack. I have my laptop connected and hyper terminal set to 9600 baud. I press q and exits the player as expected. Hijack says it removed some menu entries and then i get a bunch of gibberish and it no longer accepts keyboard input. This gibberish is probably the empeg switching to 115200 baud, because if I reconnect at 115200 baud I am in the shell. Is this the expected behavior?

I've had trouble myself with having the [gpsapp] section in config.ini. Just try to pass the protocol on the command line, i.e. start it as 'gpsapp earthmate'.
I tried that, still doesn't work.

You can derive power from one of the serial pins, I forgot which but it is in the faq somewhere. But you can't just plug a 12v->6v transformer in the middle because it is a DC current, and the transformer needs alternating current to work.
I'm probably just using the wrong terminology. I think maybe I should call it a "voltage converter" not a "transformer" that I'm using. Its basically an old cigarrete lighter adapter for a cd player that I took apart and connected to the ignition and to pin 9 of the gps. Whatever it is, it converts the cars 12v DC to 6v DC 500mA.

Also your picture was strange, why was (+) connected to the GND, and the (-) to the DTR pin on the gps?
Probably me just not knowing how to properly label things. I always thought that power was labeled as a negative - and flowed to the ground which was positive +, like on a battery? But the way I have the power connected works well with my laptop, so I think everything is right.

Which serial connector are you attaching the Earthmate to, DomoKun? The one on the sled or the one on the back of the empeg itself? The sled one is wired funny, as I remember
I'm using the car's sled. I only have pins 2,3,5 connected to the sled, and it works with my laptop, so I'm pretty sure it should work with the gps.