Hey Azarah, I have found two reasons why we need a non-symlinked /etc/mtab: 1) (as we already knew) the symlink to /proc/mounts messes up loopback device handling 2) the symlink messes up filesystems mounted with the "user" option in /etc/fstab. With the symlink, any user can mount the filesystem (correct), but any user can also unmount the filesystem. With a real file at /etc/mtab, only the user that mounted the filesystem can unmount it. This is the correct behavior and our current behavior could be considered a security hole.
I'm fixing this in baselayout 1.7.0