My issue was fixed in jaunty 9.04 bug 276822, they added two files, 
lupin-casper and ubiquity-casper
dpkg -l |grep casper
ii  casper                                     1.173                            
 Run a "live" preinstalled system from read-o
ii  lupin-casper                               0.22                             
 Add support for loop-mount installations to 
ii  ubiquity-casper                            1.173

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USB startup thumb drive fails to boot
https://bugs.launchpad.net/bugs/293083
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