Thanks Suneohair for posting this solution. I'm almost there but for the life of me I just cant seem to be able to change file names or drop files into the sparse dmg! Steps 1-5 went fine.
Finder reports- The item 'NewOSInstall.mpkg could not be moved because 'Packages' cannot be modified.
I had no problem editing and saving the distribution file but finder will not let me modify names or drop the newOSinstall.mpkg into the /System/Installation/Packages folder. Is there some way to do this from terminal or is there something very simple that I'm missing?
Edit: get info on mounted image says I can read/write.....baffled :-( please help