Good to see that latest live-boot fixes this issue, thanks everyone. :)

Patch for the messages upstream: https://lists.debian.org/debian-
live/2014/03/msg00020.html

They appear only in some corner cases, just do not care too much :)

Did everything again from scratch and this time there was no error message 
regarding /tmp/custom_mounts.list. I removed the disk that I used for persistency 
and recreated it. This time with persistence.conf. So it looks like that the 
error message does not always appear.

Works for me, too, with daily build. Tested with virtualbox and a similar setup 
like evgeni. Did not use a label either. Although it would be cool to activate 
encryption support by just providing a label instead of a bootoption, IMO.
I had to boot a couple of times because I copied persistence.conf to the wrong 
place outside of the image ;) But that's why I realized that the error message 
appears only on the first boot! I have not found out yet why this is happening.

The error message is correct, though. Let's see if that's patchable upstream.

Works for me:

qemu-img create -f raw persist-crypt.img 512M
sudo losetup -f persist-crypt.img
sudo cfdisk /dev/loop1 (create one big partition)
sudo cryptsetup luksFormat /dev/loop1p1
sudo cryptsetup luksOpen /dev/loop1p1 cryptloop
sudo mkfs.ext4 -Lpersistence /dev/mapper/cryptloop
sudo mount /dev/mapper/cryptloop /mnt 
sudo vim /mnt/persistence.conf
sudo umount /mnt 
sudo cryptsetup luksClose cryptloop 
sudo losetup -d /dev/loop1

kvm -m 1024 -hda persist-crypt.img -cdrom /home/evgeni/Downloads/grml64-
small_sid_latest.iso -boot d

I put "/ union" in the conf -- sure you typed "union /"? :)
I booted with "persistence persistence-encryption=luks", but passing a label did 
work too, even though not needed in my setup.

The luks-enabled persistency doesn't seem to work (or its usage is unclear :)).

Also it emmits strange error message during bootup because it tries to access
/tmp/custom_mounts.list before making sure file exists (also see attached
screenshot).

How to reproduce (rewriting from memory):

* cryptsetup luksFormat /dev/sdX2
* cryptsetup luksOpen /dev/sdX2 crypto
* mkfs.ext4 -L persluks /dev/mapper/crypto
* mount /dev/mapper/crypto /media/test
* echo "union /" > /media/test/persistence.conf
* umount /media/test
* cryptsetup luksClose /dev/mapper/crypto
* reboot with boot options "persistence persistence-encryption=luks
persistence-label=persluks"

Boot options in usage:

 persistence persistence-encryption=(luks,none) persistence-label=persluks