Greg,
Why don't you just mount it and copy the stuff over to a physical/logical volume? That's what I did. For example, for download the Debian 3.1 image file from jailtime, and do the following from your dom0:
# mount -o loop debian.3-1.img /mnt
# mkdir -p /osTemplates/debian31_base
# cp -ax /mnt/* /osTemplates/debian31_base
Make a swap file, create a config file, and away you go!