Buggy kvm crashes with kernel panic if xen started inside a kvm machine.
kvm needs the -no-kvm-pit, this argument is not available with libvirt.
I have tested the following workaround on ubuntu 9.04
Rename kvm
cd /usr/bin
mv kvm kvm.orig
Use the following script instead the original kvm
#!/bin/sh
exec kvm.orig -no-kvm-pit $*
Do not forget chmod +x kvm
Have fun,
Thomas