The console on a regular OS has very little in common with Rockbox - while we have the ability to print text, we really are mostly a graphical system, and this is why I had to invent a terminal-like interface for frotz to use. The ability to print text in a grid is very limited, mostly you need to think of everything in terms of pixel coordinates. Having said that, the fact that the output system might be different doesn't mean it wouldn't be easier to develop the meat of the game on a different platform first (one with a debugger, mostly)
It's up to you really; how soon do you want to see your code running on Rockbox?
Making the game work on all LCD sizes depends greatly on what kind of display you are going to have. The image in my head may not match up with what you are thinking of, so I produced this mockup of what I was imagining using all of my Amazing MSPaint Skills:
If that's the kind of thing you were imagining then that's easy to scale to different screen sizes, within limits: the main text window can just wrap at whatever width and will scroll more often if the screen is smaller, and the commands and so on could pop up over the top while it was prompting you. It should fit on a pretty tiny display if people don't mind a lot of [MORE] prompts