May I ask why this unusual setup ?
Sure. I found a recipe online -- "how to make your virtual linux real" or something (the tutorial has been taken down since I followed it), and I used it successfully with minimal fuss with arch linux.
I like it because I can make all updates and customization in the vm and then still have it if my usb stick dies.
I just thought I'd try it with pclinuxos. I have a just less than 4 gig image all updated and ready to stick on a stick. Except it won't boot. :-)
You can do the above in PCLinuxOS, but using different tools: use mylivecd
to remaster your customized installation, will generate an ISO
image. Later you can use the ISO image and burn it on CD/DVD, or transfer it's content to a USB stick using PCLinuxOS-LiveUSB-Creator
BTW, welcome to PCLinuxOS forum!