You lucky bunch. What version of TosWin2 are you using and on what system?/etc/inputrc doesn't change anything for me.
I'm using toswin2 compiled for coldfire (CVS HEAD/trunk however you call it...).
bash and readline are both from my in-progress coldfire mint package repository/build-system:
http://www.atariforge.org/gf/project/coldmint/scmsvn/?action=browse&path=%2Fcoldware%2Ftrunk%2Fmake%2F(You can't yet download packages there -, but you can click on the makefiles and see the version of readline / bash and see the configure flags, maybe there is something important which enables reading of /etc/inputrc)
If you want to download the binaries (.ipk files, you can extract them for example with mc, or maybe cpio), they are temporarily located here:
http://monokrom.orion.uberspace.de/coldmint/packages/ Greets, Ole