The installer on a 201204 LMDE Live CD is unable to see a virtio disk when running inside a KVM image (disk /dev/vda for example). This error and the bug fix was reported and acknowledged on the following post at least by Apr/2011. The fix is to run the command $inxi -U (as root). Hopefully this simple command can be added to the next Live-CD release.
Copy and paste of the relevant post from the URL above:
Justin Krehel (jkrehel) wrote on 2011-04-21:
This has been added. In the live environment, you can open a terminal and issue the following command:
sudo inxi -U
This will update the inxi script, which is used in live-installer for disk detection. Subsequent versions of LM Debian Edition will contain the updated script, but for now this should handle the issue.
Thank you for your patience.