Here are some steps I took to make my live cd's.
1. A fresh install. Only used long enough to make the changes I wanted for building packages.
2. I installed only to a swap and root partition...no home partition. That way, I don't risk making root to small and restricting the size of tmp.
The first I installed to a 20 gig partition on my computer and dual booted to it. From there I downloaded ftp://ftp-osl.osuosl.org/pub/vectorlinux/Uelsk8s/vl-live-tools-1.0.6-i586-4vl59.tlz
and installed with installpkg.
I then just ran it from the menu.
The 2nd live cd I created from Vector 6.0 light running in Virtualbox. Didn't really know if that would work but it did. Same steps as above.
I really, don't know specifically where you are running into a problem, but maybe you can see a difference in how I did it and how you are doing it that will help.
Hope you can get it going. It really does save time, and it was your idea after all.