I had the earlier version of Displayserver (1.1) working on my Mk2 player with the lower amount of memory. I haven't tried displayserver 2.0 on it yet.

Is Frank still offering Displayserver 1.1 for download from his web site? If so, Crocklobster could try that.

Note: try getting Displayserver working by itself first, without the replacement kernel. If that works, then move on to the kernel mod.