Confirmed that adding "mkdir -p ${DESTDIR}/var/run" as last line in
/usr/share/initramfs-tools/hooks/watershed allows boot to be successful.
I did notice a non-fatal complaint about the lack of /etc/udev/rules.d/
directory.

-- 
root on LVM broken since latest udev 136-2
https://bugs.launchpad.net/bugs/314879
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