Hey,

I got to fight with the cloop.o Bitch to, I was upgrading my DSL cd.
The iso never got mounted with v0.68 , I upgraded to v2.00 which I downloaded where your link points to.... Fantastico!

When you do a make just open the Makefile and edit the first line to where your source tree points to! ("../linux" for me)
I also replaced the :
create_compressed_fs*
extract_compressed_fs*



Syslog Output:
Feb 3 17:42:52 dth kernel: cloop: Initializing cloop v2.00
Feb 3 17:42:52 dth kernel: cloop: loaded (max 8 devices)