In this wiki entry, I describe how to extend a FAI nfsroot, so it can be used as a file system for a diskless client or a Live CD. A host can mount it via NFS when booting via PXE. You can create a Live CD easily by using the command fai-cd.

This works also nicely with a Xfce desktop, and I've prepared a ISO image for easy testing.

You can log in as user demo, and the password is fai.

The next thing is to check, if we can use FAI's dirinstall or install method for creating the same environment, so it will be easy to create customized Live images.