I found this bug report by googling. Here is my experience.

/dev/sda7  ext3
/dev/sda8  crypt-luks partition
/dev/sda9  ext3

grub.cfg in MBR pointed to an iso in /dev/sda9. On boot, I got the
message

mounting /dev/sda8 on /isodevice failed.

This message disappeared, and boot succeeded once I moved the iso from
/dev/sda9 to /dev/sda7 and changed the pointer in grub.cfg. It seems
clear that the crypt-luks partition acts as a barrier of some kind. I
speculate that it may be impossible to boot an iso in any partition with
partition number higher than the crypt-luks partition. Note that I have
also booted an iso from /dev/sda3 previously. Only /dev/sda9 was
problematic.

In the meantime I have overwritten /dev/sda8, so no further testing is
possible.

-- 
booting iso from stick via grub2 loopback gets stuck on particular crypt-luks 
partition
https://bugs.launchpad.net/bugs/520500
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