No X anywhere in my environment <smile>. Somehow I normally manage!
Ah I never gave KVM or virtualization a try in Gentoo. None of my servers have X though using X11 forwarding still works. In CentOS the package is xorg-x11-xauth , looks like it may be x11-apps/xauth in Gentoo.
Actually that command errors out:
Does "virsh iface-list" show tap5?
For the disk, this is what I have for my virtio disks...
<disk type='file' device='disk'><driver name='qemu' type='qcow2'/><source file='/vmstore/images/domain0001.qcow2'/><target dev='vdb' bus='virtio'/><address type='pci' domain='0x0000' bus='0x00' slot='0x06' function='0x0'/></disk>
Also maybe add something like this to your virt-install line...
"--disk path=test1.img,device=disk,bus=virtio"