The shell, chrooted into /mnt/sysimage, has the wrong terminal settings - what you type isn't echoed.
Hrmm, what does stty show? We're not changing anything from the defaults...
stty sez: speed 38400 baud; flush = ^U; ignbrk -brkint -imaxbel -echo tty2 is: speed 38400 baud; flush = ^U; -brkint -imaxbel
Fix committed, needs testing.
Does this one still need testing?