If you are using an actual custom site  definition and not a site template the
answer is YES. There are three steps involved.

1) There are two attributes of the Configuration element in the Site
Definition (MasterUrl and CustomMasterUrl) that can be used to set the URL of
the default.master and Custom.master. You would point these at something like
~_catalogs/MasterPage/MyCustom.Master.

2) Then create a Module in the Modules section of the Site definition  to
ghost the MyCustom.Master to the master page gallery where your MasterUrl
setting will load it from. (I've got a BLOG entry here that talks about how to
create a Feature to do this, but the Module declaration is the same).
mindsharpblogs.com/.../1903.aspx<https://mindsharpbl\
ogs.com/pauls/archive/2007/06/18/1903.aspx>

3) Reference the new Module in the Configuration Modules section to ghost
the master page when the site is created.

FYI - the CustomMasterUrl is the setting for the ~masterUrl/Custom.master token
and isn't normally used outside of a publishing site. But you can use it on
your own pages if you like.

When you say "If you are using an actual custom site  definition and not a site
template"
The plan is to copy an existing site definition  (probably sts) and modify it..
Would your response work with this scenario?

Yes, I meant doing that as opposed to the "Save site  as Template" route. A lot
of people don't really differentiate between the two since they show up in the
same place when creating sites. But their capabilities are very different. If
you copy the ONET.xml in STS to make your site definition  then you are creating
a site definition not a site template.

I looked at your instructions, also found two blog entries supporting this..
They are as follows
statto1974.wordpress.com/.../using-a-custom-master-page-in-a-site-\
definition/
www.sharepointblogs.com/.../custom-site-definition\
-with-custom-master-page-for-sharepoint-portal-server-2007-moss-2007-and-wss-3-0\
.aspx

I followed the steps and when I created  a site  from the custom  site definition,
I got a 403 error..Website declined to show this web page
Any ideas why this might have happened?

If you navigate directly to the site  Settings page
http://site/_Layouts/settings.aspx and check the master page gallery is the
master page there? (you can navigate there direct because it uses
Application.master and will be unaffected by your site's masterpage  setting.)

If the master page isn't there then either there is something wrong in the
<Module> or you didn't call the <Module> by adding it to the <Modules> section
of the configuration. If its refusing to show the page then its probably
resetting the master page, but can't find the page.

I was able to get to the site  settings, but wasn't able to even view the
masterpage gallery. Same result..403 error...

The Master page gallery doesn't use application master so you'll need to use the
master page link  on site  settings to change the master page so that you can look
to see if its in the gallery. You are sure the master page itself works?

I am sure that it works..I have manually applied it to sites and it does work.

does it matter if I have a copy of the master page in the folder of the site
definition?

That's where the <Module> would be copying the master page from, so it should be
in that directory.

it is there..and was there when I tried this the first several times.

Two other possibilities.

1) What does your MasterUrl property read in the ONET.xml. It's very easy
to get a mistake there.

2) Are you creating the site  in a site collection with Publishing
Infrastructure turned on? If so, then the master page you reference has to be
one in the master page gallery of the root site.

Can I assume this is done in onet.xml?
If not, where is this done?

See Point 1) in my response and substitute Onet.xml for site  definition. In
other words, there are two attributes of the configuration element in the
ONET.xml of a site definition, MasterUrl and CustomMasterUrl. These set the URL
settings used by pages in the site that reference ~masterurl/default.master and
~masterurl/custom.master respectively as their masterpage  location.

Is it as simple as just adding the entries to onet.xml?
Do you have a sample of code I can look at and try to emulate?
I saw your blog on using a feature to do this..but I won't be using a feature at
this point..