Basically, you can lift a prepared dugout, THEN use it on a fire to start burning it out, while still holding it. It allows you to walk with an otherwise unliftable object around.
It's fine and dandy, but I have "accidentally" put that dugout into a rowboat, and now I cannot retrieve that dugout. I made another dugout and waited out it's burning time, and I still can't take the first one out of the boat, which leads me to believe that dugout can't progress in there, so I can never retrieve it. Maybe not the most important bug that there is, but it certainly bugs me.
Apart from making dugouts impossible to light while carrying them, maybe let otherwise unliftable objects be picked out of storage - if they got there somehow, they probably were lifted in there in first place, and I feel like lifting them again is less annoying (and prone to abuse - I'm not sure if you can do that with locked knarrs, but someone could fill one with burning dugouts to render it's hold unusable) than if they were to stay there forever.