We now have a working Live dvd construction method that is easy to follow and works quite well. In fact, it will work on either hackintosh and legit macs, depending on the kext's and boot loader used!
This method works because OSX has a disk image boot system in place to support its network boot system. IOHDIXController and kernel can take a path to disk image supplied to them, and mount it as /, via "imageboot", which recognizes a disk image as an attachable filesystem.
Further, Apple has setup a system to take a read-only disk image and attach a shadowfile to it, so that it is writeable. Intended to support a network boot system by making the user's session local and non-persistent, it is implemented in /etc/rc.netboot. Basically, vndevice (/usr/libexec/vndevice) attaches a shadow file to the dmg, and enables a copy-on-write strategy on that device--writes to the dmg are diverted to the temporary shadow file. This is much like what happens on a linux live dvd, albeit with Unionfs.
Normally the shadowfile is created on a local disk or network share, on either nfs or hfs. Under my method, the shadowfile is created on ramdisk formatted with hfs, and the system behaves exactly as if it were booted with netboot. The difference is that I specify that the dmg to boot from is local(file:///), and then manually start a customized rc script. The script behaves like rc.netboot, except i create a ramdisk and setup the shadowfile there instead of on a local disk. After that / is R/W and OS X boots normally into finder...and beyond.
More details in the link below to the InsanelyMac X Labs!
2009 Live DVD - InsanelyMac Forum