I can confirm the behaviour. I made a Xen DomU for karmic under lenny,
using lenny's kernel (Debian xen kernel 2.6.26-2-xen-amd64). After init-
bottom it drops dead. I also tried to upgrade from a working Ubuntu
jaunty install (image from
http://stacklet.com/downloads/images/lister/Ubuntu/9.04/x86-64 ) – the
9.04 worked (I have log too if someone cares), the 9.10 does not. I
first thought that maybe the hwclock script was the culprit, xen removes
this normally, so I removed it too but it didn't help. The last lines
when providing --verbose are:

init: mountall state changed from spawned to post-start
init: mountall state changed from post-start to running
init: Handling started event
init: Handling mount event

And then it stops using 100% CPU according to xen top.

** Attachment added: "Boot log of Karmic DomU"
   http://launchpadlibrarian.net/35544120/ubuntu910log-2.txt

-- 
Karmic Koala stops dead after /scripts/init-bottom
https://bugs.launchpad.net/bugs/398214
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