I simply wanted to confirm this error, I did an minimal install from the
ubuntu 8.04 server edition beta iso (without any fancy extras except
openssh and xen).

and replaching 
disk = ['file:/images/win2k3disk.img,ioemu:hda,w',
'file:/images/win2k3iso.img,ioemu:hdc:cdrom,r']

by

disk = ['phy:/dev/loop0,ioemu:hda,w',
'phy:/dev/loop1,ioemu:hdc:cdrom,r']

does the trick as well for me after the loopback devices are created
offcourse.

-- 
losetup fails when using the 'file:/', preventing the DomU from being created
https://bugs.launchpad.net/bugs/211726
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