Comment 2 for bug 564757

Unfortunately, this can't be done. There is no general, distro-agnostic way to make a loopmounted install of a Linux distribution - the way Wubi does this (which I was the original developer of, by the way) is to patch the Ubuntu initrd, and since each Linux distribution has a different initrd layout and boot process then there's no general way to automatically modify the initrd to support loopmounted installs; the specific initrd patches Wubi uses will only work only on Ubuntu and its derivates.