Well, it should be possible, but it's going to be messy. Even if you create the static bootstrap directory first, you'll need to find a way to boot to that - in the typical host/target setup, chrooting gives you the benefit of using the host's startup files and init sequence without replacing them. And some files may linger from the older installation, which might cause problems in some cases. Ask this on the BLFS-support mailing list - someone there will have done it, I imagine.
If you're just short on space and can't create a whole new partition, I would do this using a loopback device. Install to the loopback device, tarball the result, and burn it to a disk. Then you can boot up from a rescue floppy/CD/mini-distro, wipe the old system, and untar the new LFS image onto it.