It turns out that the install of R1 pretty much uses up close to 8GB, actually about 7, but who's counting. Thanks to Tim who left a comment to this effect.
Anyway, this doesn't leave enough room to do much of anything, including install future updates. For that reason I have increased the minimum drive size to 16 GB for R1 and change the lvcreate command to use '-l 100%FREE' which makes it a bit easier.
This does not affect the how-to that uses persistence.
Backtrack 4 - Bootable USB Thumb Drive with "Full" Disk Encryption
-Kevin