%include cannot be in kickstart scenarios where ks.cfg is just copied on a floppy (or probably CDROM somewhere); it seems like including is only possible from "root" images. This is usable in scenarios where you do like 'linux ks=floppy".
Sure you can, it just requires a little more work. Something like the following should let you use '%include /tmp/floppy/foo'. Rather than add more to already frightening code, I'd rather keep it understandable and have people take advantage of it better. It will just take a little bit of time to discover the complete range of what it lets you do. %pre mkdir /tmp/floppy mknod /tmp/fd0 mount /tmp/fd0 /tmp/floppy