I booted a xenial guest as shown in my comment 10, added -proposed and
rebooted into overlayfs

ubuntu@sm-y1:~$ uname -r
4.4.0-38-generic
ubuntu@sm-y1:~$ dpkg -S /boot/vmlinuz-4.4.0-38-generic 
linux-image-4.4.0-38-generic: /boot/vmlinuz-4.4.0-38-generic

$ grep overlayroot /proc/mounts 
overlayroot / overlayfs 
rw,relatime,lowerdir=/media/root-ro,upperdir=/media/root-rw//overlay,workdir=/media/root-rw//overlay-workdir
 0 0

$ sudo apt-key add my.pubkey
OK


So xenial looks good to me.

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https://bugs.launchpad.net/bugs/1618572

Title:
  apt-key add fails in overlayfs

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