Ihave no idea how to get the loopback device working in OpenVZ, but what's more frustrating is that I purchased a CPanel license for my VPS and clearly it is not "VPS Optimized". Although everything does seem to work at this point despite that error.
The suggestions here: http://forum.openvz.org/index.php?t=msg&goto=1339 don't seem to work at all. This is an OpenVZ issue, but also a CPanel isue, why on earth would loopback support be expected in a VPS a........