I have the same problem here, but on a rather unusual system:

The system is Debian etch, but as the NIC is not supported with the stock 
debian kernel, and we needed Xen on the host, I built the Ubuntu xen kernel for 
the machine.
While creating a Domain with xen-tools, we ran into this problem. Then I built 
xen-3.1.0 from xensource, but the problem persists. Sadly, the box is a root 
server located at our ISP, so I cannot reboot it until tomorrow, and testing 
possibilites are limited.

Ciao

Martin

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xen-image-create fails with kernel panic
https://bugs.launchpad.net/bugs/135041
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