Since you understand loop booting in grub2 far better than myself, I'll ask you.
Would it be possible to create a loopback.cfg file for UBCD ?
From SG2D loopback cfg wiki page
This works not by "chainloading" the iso (which is impossible) but by extracting the kernel from the iso, either before hand or at boot time with grub2's "loopback" command. The kernel is then passed a parameter that tells it that it needs to look for its root not in /dev/cdrom, but by loop mounting an iso file. This parameter also tells the kernel (more precisely the initrd scripts) what path the iso can be found at.
So while UBCD scripts cannot find themselves in a iso thanks to a kernel parametre alike where SG2D would put the iso path it won't be possible.
More than this depending on the way that UBCD boots its images (memdisk boot I think should not be a problem but booting another distro which doesn't know how to look for herself) might be a problem.
If UBCD can boot itself given an iso path, even from syslinux or isolinux, we can adapt it to use it as a loopback.cfg file. It it can't some improvement needs to be done in UBCD scripts a such a sense.