Here are instructions for setting up new guest servers in Xen. Make sure you have your Xen host set up correctly. Specifically the xen-tools configuration, which is what we use to create the guests. If an install fails, read the log in /var/log/xen-tools.
xen-create-image --ip=IP --host=HOSTNAME --dist=hardy
After a bit you should be able to ssh to root@IP
apt-get update apt-get dist-upgrade
mkdir .ssh scp somehost:.ssh/root_rsa.pub .ssh/authorized_keys
PermitRootLogin without-password
/etc/init.d/ssh restart