I have same problem with wheezy (host) and squeeze (guest).
In libvirt I have following memory configuration for the guest:
<memory unit='MiB'>1024</memory>
<currentMemory unit='MiB'>128</currentMemory>
[...]
<memballoon model='virtio'>
<address type='pci' domain='0x0000' bus='0x00' slot='0x05' function='0x0'/>
</memballoon>

But the guest uses only 128 Mb, and when it fills, begins to use swap instead of increase memory.


Linux version 3.2.0-4-amd64 (debian-kernel@lists.debian.org) (gcc version 4.6.3 (Debian 4.6.3-15) ) #1 SMP Debian 3.2.41-2 Command line: BOOT_IMAGE=/boot/vmlinuz-3.2.0-4-amd64 root=UUID=170b7f1f-8fd8-4e89-b923-b8ecfa50d761 ro quiet

Packages:
libvirt-bin    0.9.12-11    amd64
libvirt0    0.9.12-11    amd64
python-libvirt    0.9.12-11    amd64
qemu-kvm    1.1.2+dfsg-6    amd64
virt-viewer    0.5.3-1    amd64
virtinst    0.600.1-3    all


lspci:
00:00.0 Host bridge: Intel Corporation Xeon E3-1200 v2/3rd Gen Core processor DRAM Controller (rev 09) 00:01.0 PCI bridge: Intel Corporation Xeon E3-1200 v2/3rd Gen Core processor PCI Express Root Port (rev 09) 00:02.0 VGA compatible controller: Intel Corporation Xeon E3-1200 v2/3rd Gen Core processor Graphics Controller (rev 09) 00:14.0 USB controller: Intel Corporation 7 Series/C210 Series Chipset Family USB xHCI Host Controller (rev 04) 00:16.0 Communication controller: Intel Corporation 7 Series/C210 Series Chipset Family MEI Controller #1 (rev 04) 00:1a.0 USB controller: Intel Corporation 7 Series/C210 Series Chipset Family USB Enhanced Host Controller #2 (rev 04) 00:1b.0 Audio device: Intel Corporation 7 Series/C210 Series Chipset Family High Definition Audio Controller (rev 04) 00:1c.0 PCI bridge: Intel Corporation 7 Series/C210 Series Chipset Family PCI Express Root Port 1 (rev c4) 00:1c.5 PCI bridge: Intel Corporation 7 Series/C210 Series Chipset Family PCI Express Root Port 6 (rev c4)
00:1c.6 PCI bridge: Intel Corporation 82801 PCI Bridge (rev c4)
00:1d.0 USB controller: Intel Corporation 7 Series/C210 Series Chipset Family USB Enhanced Host Controller #1 (rev 04) 00:1f.0 ISA bridge: Intel Corporation Z77 Express Chipset LPC Controller (rev 04) 00:1f.2 SATA controller: Intel Corporation 7 Series/C210 Series Chipset Family 6-port SATA Controller [AHCI mode] (rev 04) 00:1f.3 SMBus: Intel Corporation 7 Series/C210 Series Chipset Family SMBus Controller (rev 04) 03:00.0 Ethernet controller: Realtek Semiconductor Co., Ltd. RTL8111/8168B PCI Express Gigabit Ethernet controller (rev 09) 04:00.0 PCI bridge: ASMedia Technology Inc. ASM1083/1085 PCIe to PCI Bridge (rev 03)

Modules:
tun
ip6table_filter
ip6_tables
ebtable_nat
ebtables
bridge
stp
ipt_MASQUERADE
xt_conntrack
xt_tcpudp
iptable_mangle
iptable_filter
iptable_nat
nf_nat
nf_conntrack_ipv4
nf_defrag_ipv4
nf_conntrack
ip_tables
x_tables
6_tables,ip6table_filter
loop
kvm_intel
kvm
snd_hda_codec_hdmi
snd_hda_codec_realtek
joydev
usbhid
hid
snd_hda_intel
snd_hda_codec
snd_hwdep
i915
snd_pcm
snd_page_alloc
snd_timer
snd
soundcore
drm_kms_helper
drm
eeepc_wmi
psmouse
i2c_algo_bit
coretemp
acpi_cpufreq
mperf
pcspkr
asus_wmi
sparse_keymap
rfkill
serio_raw
evdev
crc32c_intel
ghash_clmulni_intel
cryptd
mxm_wmi
i2c_i801
i2c_core
video
processor
iTCO_wdt
iTCO_vendor_support
wmi
button
ext3
mbcache
jbd
dm_mod
raid1
md_mod
sg
sd_mod
crc_t10dif
fan
thermal
thermal_sys
ahci
r8169
libahci
mii
libata
scsi_mod
ehci_hcd
xhci_hcd
usbcore
usb_common

--
Zhuravlev Alexey

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