The good news is that I fixed one show-stopper bug. It was to do with an incorrect path when using overlay instead of aufs.
The bad news is that I have hit another show-stopper bug, that seems to be a fault in overlay filesystem.
I am running kernel 4.11.9, so very recent overlay driver.
Booting the live-CD, have a zram on top, the read-write layer, and q.sfs on the bottom, the read-only layer.
When I tried to run "rm -rf <folder>" it spat out lots of errors about directories "not empty".
I googled, and found people reporting this error when using btrfs, or overlay.
btrfs I expect, it is flakey.
This is one of the overlayfs reports:
OK, I am going to compile the 4.11.9 kernel with aufs, see if that fixes it.
Comments:Aufs to the rescue Posted on 12 Jul 2017, 15:50 by admin
I am now running Quirky Xerus x86_64 8.1.93 (a beta of the upcoming 8.2) from a live-CD. The kernel is 4.11.9, now with aufs instead of overlay filesystem.
And it "just works". The show-stopper problem has gone away. So, overlay is not ready for prime time, or to be more blunt, it is broken.