Another quick experiment while I'm looking into this, try:
febootstrap fedora-10 f10
and see if that can create a Fedora 10 distro under f10/ subdir. (Doesn't need to be root).
Rich.
Just as an update, we solved this together in the end:
http://git.et.redhat.com/?p=febootstrap.git;a=commitdiff;h=efd83597d9107b725...
Rich.