Let's try to simplify.  What happens if you run kvm by hand as such:

qemu-img create root.img 10G
kvm -m 8192 -smp 6 -vga cirrus -boot d -drive file=root.img,if=virtio,index=0 
-cdrom /var/lib/libvirt/images/LinuxISOs/ubuntu-8.04-server-i386.iso

?

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https://bugs.launchpad.net/bugs/795717

Title:
  32bit rhel and centos 5.(5|6) hangs on boot on natty

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