I second this - just incredibly slow I/O results in nearly unusable KVM guests. 
Tested with lucid guests and windows 7 using virtio drivers. 
I am using a luks crypted lvm partition on top of a sata md raid. 
Changing I/O schedulers doesn´t help.

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Slow disk IO for all guests with all disc modes and types.
https://bugs.launchpad.net/bugs/550409
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