For quite sometime, I can remember that there was this requirement for MPLS to have the "VPNv4 peering interfrace prefix MUST be /32" and it was documented as such. Is this still the case, because I just tested the theory out and specifically made sure that my vpnv4 peerings were done off loopbacks were I didn't have the as /32 and my PE-to-CE routing works fine over the mpls cloud.
Any feedback would be great, because i don't know what's right or wrong now.
I also have seen many documents with the same concept of /32 loopback. But this is just to avoid wastage of addresses and secondly to make sure PE routers have reachibility to each other over MPLS LSP.
Here is a case in which it is preferred to go with /32 loopback
I am using OPSF as IGP and loopback of /24.
OSPF will advertise the loopback address of PE to other routers as /32 network. Middle P routers will install these routes in routing table as /32 and will put them in LFIB also. But, what the issue is P router will not receive any label for this /32 network from PE router because if you check routing table on PE, there will be route for only /24 and will generate label also for /24 not for /32.
This will break the LSP and all the VPN traffic will get dropped.