How to find out if my Device's Kernel has Loop Device Support
You can verify by checking /proc/config.gz and search through it looking for the configure option - CONFIG_BLK_DEV_LOOP=y. 

To do that you need to do it this way:

cp /proc/config.gz /sdcard/kernel_config.gz


and

adb pull /sdcard/kernel_config.gz


Unzip the kernel_config.gz and open it up in a notepad or text editor and search it.

If its either # CONFIG_BLK_DEV_LOOP is not set or CONFIG_BLK_DEV_LOOP=n all bets are off.