This program sounds very nice. If the "installation" is made on the hard drive maybe it's time to look toward a fantastic compression algorithm. It's lightning fast, it requires no memory for decompression and has the best ratio compression/speed. Its name is LZO
. You should read the doc, my english is too rusty to explain LZO's interests correctly.
XZ is a very good compressor but good compression is not needed if the squashfs root is in the harddrive. In my humble opinion, the most important part here is speed: the system should be as fast as a normal installation. LZO makes that possible.
But LZO is not active in PClinuxOS squashfs tools so a new package should be made (a line to uncomment in a Makefile).
LZO should make PClinuxOS ISO to run faster if, of course, the LZOed squashfs fits in a CDROM.