Ok, tried it. Either I was hallucinating or the original bug is fixed
indeed:  Now installing without acceleration, ie. <domain type="qemu">,
works both on block devices and images while installing with <domain
type="kvm"> fails in both cases.

I think the latter is a known bug, just got to find the correct entry to
dup this...

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XP fails to install in KVM on a LVM block device
https://bugs.launchpad.net/bugs/298056
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