As I tried to install Ubuntu 10.04 inside of Windows Virtual PC, I kept getting message:
(initramfs)mount:mounting/dev/loop0 on //filesystem.squashfs failed: Input/output error
can not mount/dev/loop0 (/cdrom/casper/filesystem.squashfs) on//filesystem.squashfs
Since I knew that anything with *nix in it's name will be a problem for Virtual PC, I tried every switch there is and result was either this message or machine would turn itself off.
It took me a while to notice that my ISO file was only 200 MB. Since Ubuntu CD should be almost 700 MB, culprit was found. It was simple case of corrupt CD.
It always amazes me how quick I am to search for deeper issues without checking simplest reason for failure first.
P.S. Great guide on installing Ubuntu can be found at Scott Hanselman's blog.