Thanks @Sebastian-Roth
Disabling the debug mode gave me a tip on the problem, as capture stopped with a failed to set permissions error.
In the end, I ended up narrowed down the problem to the type of filesystem presented to FOG from the KVM.
I had:
<filesystem type='mount' accessmode='passthrough'>
<driver type='virtiofs'/>
<source dir='/images/'/>
<target dir='ximages'/>
</filesystem>
This is not quite OK for FOG, needs to be a raw disk presented to the guest. I changed it to a raw disk with :
<disk type='block' device='disk'>
<driver name='qemu' type='raw' cache='none'/>
<source dev='/dev/disk/by-uuid/7c4cf625-18de-4bd8-852b-952b9bc7fdc5' index='1'/>
<backingStore/>
<target dev='vdb' bus='virtio'/>
<alias name='virtio-disk1'/>
</disk>
And all worked just fine then. Looks like a /filesystem declaration is not a proper ext4 filesystem when mounting on the guest.
All is working fine now. Thank you all for your help.