Let's assume a $10K loan and over 5 years, you repay $11K. That $1K of interest is from your after-tax funds, and it gets added to your 401k balance, so you pay tax on it again when you withdraw the money in retirement. So I can see how that is "double taxation." However, you are not paying double tax on the earnings and gains that come from having that extra $1000 in the account from repayment to retirement so it is not a total loss.
No, you can't do a conversion or rollover into a Roth plan and avoid the "double tax." You never have a taxable basis in your 401(k), thats per the regulations. All the funds in a 401(k) are considered pre-tax under the law, even if they weren't actually pre-tax, so if you rollover any funds from the 401(k) into any kind of Roth account, it will be a 100% taxable conversion.
