Well yes but it would probably conflict with mounting/dismounting FAT partition by the OS and usb storage functionality so it wouldn't be pretty. Also it would be a bit complicated to set up inside initfs - there is currently no losetup command for setting up loopback device and it would need modification of not just bootmenu.sh but original Nokia's linuxrc too (which changes from time to time so I try to minimize changes there to absolute minimum). I'm not convinced this would benefit to many users and would compensate added complexity. Lets say that this is low priority and I would accept patches adding this functionality :-)