It is pretty essential that all gentoo-* sources have squashfs support in them, and that the versions match between gentoo-sources and gentoo-dev-sources, otherwise it causes problems for those of us building releases. It is also necessary for the version of squashfs-tools to match the version of squashfs available in the kernel. The squashfs-tools-2.0_alpha is *not* backwards compatable to 1.3 (separate bug filed). The current (2.4.26-r2) version of gentoo-sources has squashfs 1.3 patched in, and I would *love* to see a rev bump of gentoo-dev-sources with the same, as it will facilitate our LiveCD building.
fixed in 2.6.7-r6 release