I just booted up the x86 2006.1 LiveCD, and I've got the overlay for the updated gentoo-sources in /root. On my local system, the overlay path was /root/catalyst/overlays/portage. This is the exact path (contents included) on the LiveCD. The PORTDIR_OVERLAY line is also in the LiveCD's /etc/make.conf.
In modules/generic_stage_target.py, it looks like the portage_overlay directory is copied over with full path into the chroot. PORTDIR_OVERLAY is also added directly to make.conf. At no point in this file is the PORTDIR_OVERLAY line removed from make.conf or the copied overlay removed from the chroot. I recommend setting PORTDIR_OVERLAY in the env instead of in make.conf. Also, use a known temp dir for the overlay, so you can just remove the whole dir tree when done without fear of killing something important. rsync the overlay to /tmp/portage_overlay or some other known directory. Even if it's left around, it won't be so obvious.
Actually, I'm trying to move away from doing things in the environment only. Instead, we'll likely be copying the "hosts" idea and making a backup of make.conf, then making changes to make.conf, then restoring the backup when we're done.
*** Bug 147430 has been marked as a duplicate of this bug. ***
OK. I lied. The "best" solution that I can come up with here is to create a new function to remove the overlay from make.conf and the directory. I still like the idea of putting it into a known location, though.
This should be fixed in subversion now...
Fixed in 2.0.2
