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Thanks for the reply,
I have found that the element that was causing the kernel to hang was the sysid module that was added in qsys. When this section is removed from the dtb I can then successfully boot linux. I'm not yet sure what this module is for or why this is the case. It was only present because it came with the tutorial I based my work on.
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As Altera Quartus/Qsys docs stated, the System ID peripheral is a "very important" peripheral to include in your system if you use Nios II soft-processor core. It allows the software development tools to validate that the software application is being built for the correct hardware system. Basically, it will not allow software to be executed on an incompatible hardware configuration (.sof). I have no information, what will cause, if it is eliminated from a HPS based FW design.
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