The main reason for experimenting with this is guest kernel testing. virt-install seemed the easiest way to me to setup the environment. There was no particular reason to take it. But I do not think the issue is related to virt-install itself, as I see grub booting and starting kernel and initrd from the image. Rather it seems to be a kernel module or config issue. Enclosed some boot logs with dracut debug options enabled (rd.shell rd.debug log_buf_len=1M).