Ok, I think I see the problem in parted. I assume that vmbuilder uses the output of parted's print free command to decide where to start the new partition, and that shows the free space starts at 16.4kb. Specifying that as the start position for the new partition would result in the too small embed area issue.
Since parted prefers to start the first partition at 1 mb, it should probably report the free space as starting there as well, not at 16.4kb.
Ok, I think I see the problem in parted. I assume that vmbuilder uses the output of parted's print free command to decide where to start the new partition, and that shows the free space starts at 16.4kb. Specifying that as the start position for the new partition would result in the too small embed area issue.
Since parted prefers to start the first partition at 1 mb, it should probably report the free space as starting there as well, not at 16.4kb.