OK; this is very strange. If I increase the RAM from 1GB to 1.25GB, LinuxPE works on my Win7 VM.
If I revert the RAM back to 1GB, LinuxPE fails again.
I know that DS 6.9 SP6 ships with a different flavour of Linux; however, I didnt expect it to be more memory hungry or memory sensitive than WinPE, especially as its PXE image is less than 100MB!