These types of errors are almost always due to incorrect wiring.
A few questions:
1) what did you change in the wiring that eliminated the RESET timeout?
You have not described how you have hooked up the contrast pot.
2) How have you hooked up the contrast pot?
What is hooked up to Vo (glcd pin 3) and Vee (glcd pin 18)
3) can you post the full sequence of the diag output?
From start to finish of 1 loop. It contains other useful information.
(make sure to re-wire the glcd RESET as described below first)
Not all displays can work with the glcd RESET signal floating.
Most do but some require a pullup to vcc and some require a full reset transition
before they will initialize properly.
The easiest for now is to hook up a pin from the mega to allow the glcd library to
control the GLCD reset line.
Once things are working, it may be possible to eliminate this additional pin.
To enable s/w controlled RESET you must edit the pin configuration file.
It is in glcd/config/ks0108_Mega.h
You have to uncomment the glcdRES pin definition.
//#define glcdRES 30 // Reset Bit
#define glcdRES 30 // Reset Bit
After you make that change run the diags and post the text output here.