I had the same problem.

I.ve tried with VirtualBox and KVM: Win Xp SP3 hang on the same point (mup.sys 
when "safe mode")...
Both has the same problem I believe the libvirt maybe the cause.  

So I use "Raw Access" with VirtualBox that solved my problem....

00:00:01.385 [/Devices/piix3ide/0/LUN#0/AttachedDriver/Config/] (level 6)
00:00:01.385   Format <string>  = "VMDK" (cb=5)
00:00:01.385   Path   <string>  = "/home/jtloni/.VirtualBox/HardDisks/xp3.vmdk" 
(cb=45)

hope will help..

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Windows XP/2003 doesn't boot
https://bugs.launchpad.net/bugs/586175
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