Systemd upstream's position is that udev is not supported in containers which makes it practically impossible to support it in Ubuntu only. Nor should livecd-rootfs collect all the trick to keep image building tools operable in containers somehow.
I suggest applying the workaround in LP to get image builds going now with the current LXD in VM setup and going forward implement running livecd-rootfs in VMs instead of in privileged containers in VMs (running a different release of Ubuntu compared to the container).
I also suggest adopting the policy of not accepting any component to the Ubuntu images that can't be installed in a chroot. This also helps in better isolation of the built image from the build environment.
Systemd upstream's position is that udev is not supported in containers which makes it practically impossible to support it in Ubuntu only. Nor should livecd-rootfs collect all the trick to keep image building tools operable in containers somehow.
I suggest applying the workaround in LP to get image builds going now with the current LXD in VM setup and going forward implement running livecd-rootfs in VMs instead of in privileged containers in VMs (running a different release of Ubuntu compared to the container).
I also suggest adopting the policy of not accepting any component to the Ubuntu images that can't be installed in a chroot. This also helps in better isolation of the built image from the build environment.