Not sure about the LiveCD question, at the moment, but a tip for mkinitrd...
If you're running it for the currently running kernel, the following helps prevent typos:
mkinitrd /boot/initrd-`uname -r`.img `uname -r`
Again, this only works for the currently running kernel! If you need to run it for an installed kernel that isn't running (as I happened to last night, when the initrd failed during the install of the 3.4 from testing), then you'll have to type it all out, so check your syntax (command completion and copy/paste could help, some).