You don't really need an ISO with Android-X86. In fact, I make my own image and boot directly into Android, even without an initrd (I *HATE* initrd, they are needed for nothing on an embedded device where you know your hardware and just eat booting time).
.PHONY:: image
image:
@test `id -u` = 0 || { echo "\n---> You need to run this as root\n"; exit 1; }
rm -rf image
mkdir image
@# Create all entries in the root directory
install -d -m 0755 image/acct
install -d -m 0755 image/boot
install -d -m 0770 -o 1000 -g 2001 image/cache
install -d -m 0500 image/config
ln -s sys/kernel/debug image/d
install -d -m 0771 -o 1000 -g 1000 image/data
install -m 644 $(OUT)/root/default.prop image/default.prop
install -d -m 0755 image/dev
ln -s system/etc image/etc
install -m 0750 $(OUT)/root/init image/init
install -m 0700 init.rc image/init.rc
ln -s system/lib image/lib
install -d -m 0775 -g 1000 image/mnt
install -d -m 0555 image/proc
install -d -m 0750 image/sbin
ln -s mnt/sdcard image/sdcard
install -d -m 0755 image/sys
install -d -m 0755 image/system
install -m 0644 $(OUT)/root/ueventd.rc image/ueventd.rc
ln -s system/vendor image/vendor
rsync -a $(OUT)/system/ image/system/
@# populate subdirectories
cp $(OUT)/kernel image/boot/vmlinuz
install -d -m 0770 -o 1000 -g 2001 image/cache/recovery
install -m 0700 modules.sh image/etc/modules.sh
@# TODO /etc/camera.cfg
install -d -m 0700 image/mnt/secure
install -d -m 0700 image/mnt/secure/staging
install -d -m 0700 image/mnt/secure/asec
install -d -m 0700 -g 1000 image/mnt/asec
install -d -m 0700 -g 1000 image/mnt/obb
install -d -m 0000 -g 1015 image/mnt/sdcard
install -d -m 0000 -o 1000 -g 1000 image/mnt/USB
install -m 0750 $(OUT)/root/sbin/adbd image/sbin/adbd
install -m 0750 $(OUT)/root/sbin/v86d image/sbin/v86d
ln -s ../init image/sbin/ueventd
@# use some busybox tools
mv image/system/bin/ls image/system/bin/ls_toolbox
I also have code to create my own "hda" image file, partition it, format it, rsync the image/ directory into it and make it bootable. I also now have android running on my target device, and can rsync image/ directly onto the target. No ISO image needed, much faster that way.
Please also note that I have my own init.rc, that knows about my directory structure. For example, I removed many of the create-stuff from the init.rc file into my Makefile, e.g. "mkdir /mnt 0755 root system", "symlink mnt/sdcard /sdcard" and so on. No need to re-do this at every boot when I can do this once at image-creation time.