Debian-Live has a terrible way to handle overlays. All instances of live-rw encountered are sandwich-mounted together, even if the advertised label mechanism is used. So, basically, for safety one should use just one at a time, renaming the others.

How bad is this in practice? It turns out, it doesn't have to be that bad. With frequent remasterings, we don't really need much persistent storage for everyday use, and we can mount volumes to get what else we need.

Right now, I write this in a kvm window running Debian-Live without persistence in a Knoppix 7.0.5 host, with two other kvm instances simultaneously running from the same image, one with persistent store, the other without.
I run them with no modification, with the same command
Code:
kvm -m 1024 /dev/sda
to get the grub menu of the host, and I choose the same (!) alternative, Live-Debian without persistence, several times.

Under kvm, I mount and modify (different) disk partitions on the host. Typically, I can run one instance for database, another for application server (e.g. JBoss), and maybe a third for mailserver.

This is what I need to develop applications with realistic testing on just one machine.
While it was not possible to run kvm in the virtual machine, I could run VMware there..

Performance isn't hopeless, I may try remastering in a VM again.
There is a definite need for knoppification of several aspects of this live-version, but the need is not desperate.