Ok I believe I have found the problem but I cannot test it right now (I do not have a linux distro available for the next 2 days). I believe it is one of the two following. Either:

1. Binfmt is configured incorrectly so when the binary is going to fork the kernel cannot run the i386 binary and therefor fails, or

2. qemu-i386 binary should be placed within the chroot too, possibly the kernel tries running the x86 binary with /home/user/qemi-i386 from within the chroot, failing.

Could someone test this?? I do not currently have access to a linux box, I might be able to prepare a VM with virtualbox later, but I'm not sure.

Cheers