For booting e.g. CentOS-Stream-Image-KDE-Live.x86_64-10-202601110111.iso directly via loopback.cfg' / 'grub.cfg' you Just need to add e.g. "iso-scan/filename=${iso_path} to grub.cfg kernel parameters:
linux ($root)/boot/x86_64/loader/linux iso-scan/filename=${iso_path} quiet rhgb root=live:CDLABEL=CentOS_AltImage rd.live.image