I've put new 9xeninst binaries on sources which should replace the spurious "file does not exist" message with a more accurate (but still not very helpful) "i/o error". I'm sorry I can't provide a better diagnostic, but the xen virtual block device just returns BLKIF_RSP_OKAY or BLKIF_RSP_ERROR.
I haven't been able to test it myself because I don't have a functioning xen system at present. Most of the interesting error diagnostics from the xen hypervisor itself come out only on the serial console. If you can hook up another machine to display your xen system's serial output, you might get more info about why the virtual disk i/o is failing.
