mkfs.btrfs is fine - I didn't make that up, that's exactly the output when I ran those commands on my laptop just now. Other filesystems don't handle this situation very well or at all.

Anyway the real power of nbdkit is not that you can create huge disks, but the plugin/filters system, so you can write highly customized block devices for specific use cases, and do things like error injection and test compression or deduplication strategies.