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In my experiments with this three years ago, the loopback device didn't work if you didn't have a sound card in the source machine. This didn't work on an EC2 machine or other shared server.

Anyone know if this has changed?

Taking a look at the ALSA code now; at a glance the loopback timer comes from include/linux/timer.h -- it doesn't look like there's any immediate dependency on a hardware interface or indeed any other device in the system. And I do recall using loopback without a hardware interface.

I would predict that the difference is actually in the virtualisation, the implementation of that timer may be very different to a physical or bare-metal machine.