ok. looks like the problem is:

loopback and unionfs don't go well together.  Have a look at unionfs INSTALL 
file:
------------------
* If you want to use losetup, then you need to define -DSUPPORT_BROKEN_LOSETUP
  You will be able to use it read-only, but when you try to use it read-write,
  you will get an Oops.  This should eventually be fixed when we have our
  own address-space operations (so that we can support sendfile).
--------------------

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Loop-mount doesn't work on Live CD (Casper)
https://launchpad.net/bugs/59779

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