I can confirm that the following kernel boots fine with 2048M allocated
to the virtual machine:

# uname -a
Linux testlucid 2.6.32-33-generic-pae #66-Ubuntu SMP Tue Jun 7 20:02:23 UTC 
2011 i686 GNU/Linux
# dpkg -l | grep linux-image-2.6.32-33
ii  linux-image-2.6.32-33-generic-pae 2.6.32-33.66              Linux kernel 
image for version 2.6.32 on x86
# free -m
             total       used       free     shared    buffers     cached
Mem:          2009         56       1952          0         14         17
-/+ buffers/cache:         24       1985
Swap:         1023          0       1023

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https://bugs.launchpad.net/bugs/790747

Title:
  Ubuntu 10.04 freeze on boot when using more than 578M in Xenserver /
  Xen

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