I tried it yesterday evening on the Jolla tablet again. I have an Arch i686 chroot (tablet is Intel x86_64). The image linked to by Preflex had a lot of stuff missing from the Arch base system (had to install a lot to make it work).

For your questions, I would untar the image as root. Only /home/nemo should be owned by nemo user. I kept my image in /home/nemo/ on the tablet (too little space elsewhere). I don't really see the point in choosing either #A or #B in your example. Whatever works for you.

There is a typo in the start_xwayland_user_shell.sh script: s/dbus-lsunch/dbus-launch/

For your last problem, it sounds like you have bind mounted directories several times, creating loops. This happened to me and I had to hard reboot the device.

Also, starting the session as user at some point would make sense, there were some errors with regards to this. I'm toying with this.

Btw, the usability of the normal desktop environments is questionable at this point, at least on the tablet. Even though I tried to do changes as recommended for HIDPI, most things are incredibly small on a 1536 x 2048 display. So far I've only toyed with XFCE.