I have the same issue. Also getting the error about the loop module, but
I could confirm in the shell that the CD image had mounted correctly
anyway.

The Release file does not contain entries for main/debian-installer/.

This was using the following installer files:

from 
http://archive.ubuntu.com/ubuntu/dists/karmic/main/installer-i386/current/images/hd-media/
d94b179fd9d5cc15e3f59019e5c3873c16dc8647  initrd.gz
43669283fa45fd9b4e81164cf29cf56f8ef9b5db  vmlinuz

and the ISO image:
2816a96de299631e545d1c068837d05c64157e49  ubuntu-9.10-desktop-i386.iso

-- 
hd-media installer fails to install from ISO media
https://bugs.launchpad.net/bugs/480368
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