How do I setup more then 10 loopback device?

Make sure you are running mknod -m 660 /dev/loop10 b 7 10. The format is mknod -m 660 /dev/loop<ID> b 7 <ID> where ID is the same.

Update [07/10/2014]

I also found a good blog post to always have more at boot. See https://yeri.be/xen-failed-to-find-an-unused-loop-device

Update [05/25/2016]

I run a CentOS server, and I found that this post was also helpful when the other methods don't work.

This makes my new favorite method:

MAKEDEV /dev/loop

It creates 256 loop devices (which is the max without modifying the kernel).