The latest revision of trunk has support for sparsebundles and NFS Loopback in order to avoid the problems with xcodebuild inside of chroots. If you do not change the way you use darwinbuild, you will start seeing the sparsebundle storage. Nothing else is needed and Xcode-based projects will build on whatever filesystem you have.
You can optionally use NFS to mount the buildroot which also works around the xcodebuild/chroot problems. This method is Leopard-only and will cause lines to be added to /etc/exports. Since there is no concept of “uninitializing” a build environment, the lines added to /etc/exports are never automatically removed. You may need to cleanup /etc/exports from time to time. You setup the NFS storage by passing -nfs after your -init command:
darwinbuild -init 9G55 -nfs
If you want the old legacy directory mode for whatever reason, you can initialize your build environment with -nodmg:
darwinbuild -init 9G55 -nodmg