[Touch Diamond2, Pure ROM Development] adstraylight:
It sounds like you've got the first combo edition, with both systems running from the internal memory, and also that you have little option but to re-flash the system. I presume from what you're saying that the touch screen still works in Windows Mobile, which at least means it's not a hardware fault.

Zimage is the boot image and system kernel for android in compressed form, which then gets written as a file system to the phone's ROM when flashed to the internal storage, so would not be found as single file on the phone after being installed in this way. This is a good thing, as the version that ran from the SDcard was very slow by comparison, as it was having to extract the system files from the much slower SDcard on the fly, much as the original ports to the genuine HTC phones did.

So where you go from here is really up to you, you could re-flash the system you've got, using the standard ROM from solonomi's site, to be sure of the language of WM, or flash the latest A2.1, which is multilingual, downloaded directly from the moon site. The benefit of going single system is that there is a lot more internal storage free for apps, the downsides are that the system is slightly less stable, and certainly more power hungry - this is manageable though if you get into the habit of turning off wifi when it's not required, and similarly going into flight mode when you are in a blackspot for any length of time.

Maybe, by the time your SDcard arrives, A2.2 will be available, so you'll have even more options. If I were you, I'd experiment with the different ROMs to see what works for you, it gets a lot less nerve wracking once you've done it a couple of times ;).

P.S. I think the main reason that my phone occasionally becomes unstable with A2.1, is that I'm running Launcher Pro(homescreen replacement) alongside LockBot(screen lock replacement), so don't think it has much to do with the ROM itself - apparently people with the Motorola Droid have had similar problems. By the looks of things, A2.2's homescreen is very much like launcher pro, so I may not need this to set up the screen the way I like it - as long as you can auto-hide the notification bar, which is the main reason I use Launcher pro.

P.P.S. If you do install A2.1, uninstall the version of Launcher Pro that comes preinstalled, as this is in Chinese, and so all market updates will also be in Chinese. What I did was to remove the stock version, then find it in the Market as a new installation, that way you get the correct language. Also uninstall UCWEB browser, as it is pretty hopeless outside China. Another thing I've discovered is that when you first boot, you'll get a system error(in fact you'll probably get this every time you boot), press the screen above (possibly below) either soft-key to cancel, as this occurs before screen calibration.

Next choose the setup wizard, this will put he phone into English.

Make sure you already have a google account, as you'll need this to complete the first boot(there is apparently a way of skipping this setup step, but I've never managed it).

Oh, and to disable the part Chinese keyboard, press and hold a text input field, you'll then get a dialogue that says 'input method', press this, and choose 'Android Keyboard'.