To those arguing the semantics of terms, a jailbreak almost literally means what it says. It just removes signature checking so you can run unsigned code. (Doesn't Atosphere still even not actually do this out of the box, or do we no longer need third-party supplied patches?) It's like just removing the bars from the jail -- where you go from there and what you do is up to you to do on your own. Atmosphere is an actual CFW in that it significantly modifies huge amounts of the firmware or even outright replaces entirely many components. It just isn't a "complete" firmware in that it doesn't replace the original outright. (Given how the Switch works that would actually be troublesome and do more harm than good. But also the biggest reason is it would mean distributing copyright code which would get rid of the very useful open-source nature of this and cause a lot of legal problems in an era where companies are a lot more likely to come down hard on anyone caught doing something that big.) Back in the PSP days we already figured all this out. This is a "LCFW" (I believe that L was "light.") It is a custom firmware, but it's loaded externally and doesn't replace the original. (It's worth noting that even true CFWs like Dark-Alex's -- I think that was the name, but man it has been a long time -- on the PSP didn't replace everything. They still basically just patched a lot of components and only replaced a bit.) To be absolutely clear, a LCFW is still a CFW, just not "complete" by that definition that it must overwrite the original and boot up unassisted, thus CFW "light" or whatever. Semantically we can still call it a "CFW" with that understanding that it is actually a LCFW. But we can't call it "jailbreaking" because that does not describe what this does and would only fit if all it did was just a few very basic signature patches and nothing else (speaking of which, the origin of the term didn't use a tethered payload for every bootup either, so the definition given earlier wouldn't work even where the term was first used...)
Anyway, I never figured out what was wrong before. I was hoping someone would know. However, I redid things again with the new Atmosphere release and it's now working again, so I can once again use the official payload via Hekate thank goodness. I just hope I don't run into whatever happened before again. My best bet is the culprit was something among the patches used as I found a different set when searching this time around versus what sdfiles uses (and this one says it supports up to 6.2.0 so I knew it was more up-to-date.) It would be nice if I could be sure so whatever it was doesn't happen again, but it's definitely working again now.
EDIT: Seems the key derivation failed error happens a LOT when booting with 0.8.1. I'm getting it almost exactly one out of every two times too. Also on 6.1.0. It's mostly a minor annoyance (I use a SwitchMe anyway, so it's mostly a delay since it seems to take a while after the reboot this does before it delivers the payload again, but I don't have to do anything with cables or anything anyway, so not such a big deal since mainly I just sit there staring at a blank screen for a while.)