I now managed to run with the latest SD image 1.0.2. Haven't gotten back to the older image to debug the issue.
Also I think the sketch.elf is just not a linux executable - I tried running
> /sketch/sketch.elf and it never worked but then I grepped the processes running and found there is a cllloader script which is being run and used that to run the sketch and it runs well.
So for running sketches with linux, some one needs to update the thread that they should be using the full command with clloader and not use sketch.elf as a linux executable. Please correct me if am wrong but that's what I have been able to get working