Description of problem: It should be possible to generate an ISO from a given squashfs, this is currently not possible.
The squashfs.img/install.img doesn't have enough information to create an iso from it -- it is missing the kernel and the initrd, as well as some of the modules and various other things removed by runtime-cleanup.tmpl
Right What about being able to generate the iso from the artifacts of the --make-pxe-live switch and a regular CentOS/RHEL boot.iso? This should provide enough informations and the necessary kernel+initrd. The story behind this feature is to be able to let users retrieve or generate a squashfs (plus APPEND line), take a boot.iso, hand both to lmc and get an installation iso from it. But - No recapping this story, I think this is already possible today using: livecd-iso-to-disk, a boot.iso, the squashfs and a small kickstart.