This -S switch is not the problem - libvirt will manage the running
qemu/kvm instances, and this is used for this.

What kernel are you running? The newer libvirt requires a kernel with some more 
enabled cgroups parameters.
Ubuntu's kernel has enabled this since 2.6.32-5.6. So please try this with a 
current Lucid kernel (https://launchpad.net/ubuntu/lucid/+source/linux).
Also, you will find such kernels in my kernel ppa 
(https://launchpad.net/~dnjl/+archive/kernel) - the lxc-flavours are the right 
ones.

-- 
[PPA] VT is not used with libvirt 0.7.5
https://bugs.launchpad.net/bugs/503376
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