I have finally got a domU to boot in this sort of situation, having found a few bugs in 4.1.0-rc2 on the way when trying to use pygrub as a bootloader. Note that you may have to use xl rather than xm because they are deprecating xm and xm may not have support for qemu block backends.
Does anyone know where I can find documentatin on domain configuration for xl? There does not seem to be a man page and a review of the Xen Wiki did not find authoritative documentation. I am trying to figure out how to write an xl configuration, i.e., rewrite xmexample1 to work with xl.