hi,
okay, try to look here more careful (I skip some lines to highlight the problem):
<PRE>
sbit busy = 0x087; //busy bit = db7

void chkbusy(void)
{
data unsigned temp;
do{
LCD_EN = 1; // CLOCKS E HIGH
temp = LCD_DATA;
LCD_EN = 0; // CLOCKS E LOW
} while (busy == 0);
}

So now could you explain why do you check bit 7 of P0 (sbit 0x87) instead check 7th bit of temp???
Try while (temp < 0x80);

Regards,
Oleg