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Using --disk seems to resolve the issue, thank you very much!
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https://bugs.launchpad.net/bugs/695697
Title:
libvirt not working properly with overlays
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Ubuntu-ser
Thank you for taking the time to report this bug and helping to make
Ubuntu better.
I think that the issue may be that virt-install is specifying the disk
format incorrectly.
Assuming that you are using qcow2 format, virt-install is incorrectly
specifying the overlay file as 'raw':
file=/VMs/
In case it is needed, here is a script I used to create my overlays:
r...@vmdawg:~# cat ovlvm.sh
#!/bin/bash
FILE='-f /VMs/Domainator.ovl'
#DISK='--disk path=/dev/VMs/Win7Base'
#ISO='/mnt/iso/ubuntu-10.10-server-amd64.iso'
NAME='Domainator'
RAM='512'
OS='linux'
VARIANT='ubuntukarmic'
virt-install