OK! I figured this out.
It seems whatever rocket scientist is in charge of the live-build-config.git has been messing it up for some time. Judging from the last time i checked he has sacked the entire project for months now by only publishing the difference of some code he's trying to update instead of the entire project's code.... smooth move ex-lax!
If you goto git.kali.org (with a web browser) and click on live-build-config.git project (
http://git.kali.org/gitweb/?p=live-b....git;a=summary) you will see (way at the bottom at the time of this writing) that there was an edit on 3/12/2015 and then 6/3/2015.....
These two seem to work (i only tried the 3/12/2015 snapshot, got it to work and threw in the towel since the mod staff here is NOT INTERESTED in helping anyone interested in being part of this community.....
SO: if you look at one of the two entries i mentioned, then look all the way to the right you will see: "commit | commitdiff | tree | snapshot"
Click snapshot, to download a tarball of the project from that point in time. Extract the files, and you will see config/package-lists/kali.list.chroot..... Extracting the files from the archive replaces the "git clone git://git.kali.org/live-build-config.git" step in the process.... instead extract the files, open a terminal and navigate to where you extracted the files, then continue the guide from there (lb config, etc)
*Note: if you extract the files in this same manner from the latest version of live-build-config.git you will notice config/ directory is missing entirely!!!!! (at the time of this writing)
The iso should come out ~2-3Gigs(+) depending on what packages you included in the build.
ALso: I got one of the 300Mb .iso outputs to boot in a vm: it appears to be a barebones kali with no programs, and no gui.... so effectively a completely stripped of all programs live debian linux iso... worthless.
Thanks to everyone else who posted about this issue in parallel, since the mods dont care, it at least illuminated the fact that since others were having the same problem I was... it probably wasn't an issue between the keyboard and the chair.
Cheers!