Due to a bug in the mapping of open64 a regular open call is issued without O_LARGEFILE being added. This causes large file operations like dd to fail. The bug is in pseudo-1.2/ports/linux/guts/open64.c where O_LARGEFILE is added to mode instead of flags
I'm looking into this.
This was fixed upstream: http://git.yoctoproject.org/cgit/cgit.cgi/pseudo/commit/?id=9461b2a88ba672c533a331f95dd5ba7eba683c77 This is already in the latest (master) oe-core.
Fixed upstream.