The latest livecd-tools[1] includes a new tool to convert a LiveCD iso image so that it can be booted over the network using PXELINUX.
The way it works is to bundle the complete ISO image inside the initrd. The kernel and (bloated) initrd are downloaded using PXE in the normal way, and the init script finds and loopback-mounts the ISO image and booting continues as normal.
This script has been added to the latest livecd-tools release from Fedora and seems compatible with the livecd-tools used to create the CentOS 5.1 LiveCD.
[1] https://projects.centos.org/trac/livecd/browser/trunk/i386/RPMS/livecd-tools...
Regards, -- Patrice Guay