TheCoolest:
I wrote an instructible on how to get the HD44780 connected to 2x595, and also provided a simple and CrystalLiquid compatible library.
My solution uses arduino's SPI pins, but in my experience it works great (on a breadboard, a perfboard prototype, and I should soon have some PCBs to confirm whether it works in a "production environment").
Maybe it can help you out with figuring out what the problem is with your SR3W setup.
http://www.instructables.com/id/3-Wire-HD47780-LCD-for-less-than-1-dollar/
There isn't really a problem with the 3 wire setup in the library.
There is a documentation issue that is creating confusion as to how to wire it up.
Interesting setup. I've seen a similar setup that used the unused outputs on the 2nd 595
to control a ladder network to provide s/w controlled contrast.
--- bill