Sorry, meant to get back to you sooner. The kkpxe didn’t change the situation. I just upgraded to 1.2.0 today and noticed it set the menu back to the original… so I had to go in and edit the file again. Glad I posted here, made it a lot easier to re-locate it. 
Something with the video chip in these 320s just doesn’t like that bg.png file… I can add a video card to a 320 and it works fine. The built in video appears to be the problem.
I had exactly the same thing happen with the Optiplex 320s at our campuses. I commented out the background image as shown above and had to manually enter the MAC address of the 320s to get them to image. I’m currently using FOG 1.1.2
For some reason the 320s will not load the bzImage file if you try to do an inventory operation. They seem to stick at 12%, 15% or 25% in most cases. Rarely the bzImage will complete loading and the operation will work, but this is maybe 1 in 20.
We have a lot of 320s, but now that they’re manually entered I can at least manage and image them.