The issue is very simple:

in the /etc/xen/scripts/block script it creates the loopback device
twice

First it does it with losetup /dev/loopx /some-image
Then if you want read-only it does
losetup -r /dev/loopx /some-image
and this second one fails cause the first one already mounted it read/write.

-- 
losetup fails when using the 'file:/', preventing the DomU from being created
https://bugs.launchpad.net/bugs/211726
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