http://lists.xensource.com/archives/html/xen-users/2007-12/msg00494.html

appears to help ( I didn't need to touch initrd, just used the -xen provided by 
ubuntu)
so currently I'm not sure if this is a fault of xend (borking on the loopback), 
or xen-tools (creating a non-functional config).

-- 
xen's xm create fails at losetup stage
https://bugs.launchpad.net/bugs/203649
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