/bin/sh path search broken

[Larry Brigman]

I have just upgrade a project I was working on from 1.1.2 to 1.2.1 and
things that just worked before have stopped.

All of the processing of init scripts have stopped.
Login profile processing has stopped.

The biggest sign that things have gone wrong is that
almost all commands won't work unless I am in the same directory as
busybox. I can also get things to work if I give an absolute path to
the program.
The only commands that I can get to work without error and without an
absolute path
are cd and export.

Any ideas?