I've been working on this issue with Roxio for the last several days. Here's what I found:
The short story is Toast 11 cannot create a temporary partition so we have to do the job ourselves by using the Apple Disk Utility.app Once you have the partition created, drag your Mac files into the partition and then open Toast and continue your build. After an hour on the phone here are the steps that you need:
Knowledgebase Article : ET6000076
When creating a Custom Hybrid with shared data, Toast gives you an error "The
volume could not be found."
Mac OS X v10.3.x (Panther) changed the way that Toast 5 and Toast 6 handled disk
images. The workaround is to create the temporary partition (disc image) in Disk
utility and use it in Toast.
1. Launch Apple's "Disk Utility", it is located in:
2. At the top of the Disk Utility window, click on "New Image"
3. A "Save As:" box shows up. Name the disk image and select the Desktop as the
destination. Adjust the Size of the Disk Image so that it can fit all of your Mac Data
and ISO 9660 Data.
4. Select "Create" (this will mount a disc image on your desktop).
5. Close "Disk Utility."
6. Drag the Mac data into the "New Image" on your desktop.
7. Launch Toast and Select "Custom Hybrid"
8. Press the "Select Mac..." button and select the image that you just created
9. Press the "Select ISO..." button and drag in the same partition (if you want to share
It's a shame that the Roxio representative that I spoke with didn't know that there was a problem. Given that Lion is a new operating system, I suppose I'd have to cut Roxio some slack, but they need to get this issue resolved with an update. I've created dozens of hybrid custom CD's using Toast 11 with the Snow Leopard operating system. Roxio needs to stop complaining that this is an Apple issue. It's their software.