Your's "How to"  works fine at Xen 3.2.1 F8 Dom0 (pygrub fixed been built from 
source).
Image files have been built on separate Ubuntu 8.04 box
on the same  LAN and copied to Xen host.
Current version of kernel at DomU 2.6.24-18-xen.
Network verified OK.
Attempted to install Ubuntu Desktop via tasksel.
Seems to be working for a while. Virt-manager indicates CPU utilization on both 
DomU 
and Dom0 (up to 10% total)
Thank you.
-b
 
 
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