I am just exploring the implications of this issue myself.
When I going out and try to buy CPU cycles, the most attractive way to do it right now is a Xen VM. There are other options - shared hosting, VMware and probably others. All have warts compared to a Xen VM. It is really nice to be able to configure and debug my VM on my laptop, then send it to the hosting provider. So that is point 1: unlike KVM or any other solution described here, Xen is out there, in the real world. Because KVM isn't, it is in a practical sense unless for one of the major applications of VM's - cloud computing.
Point 2 is that many of those Xen images out there are para-virtualised for speed, so I can't use KVM to develop them.
Point 3 is I want to run the latest Linux kernel as my Dom0 - principally because nothing else seems to work on modern hardware. Applying the Xen patches myself is an absolute PITA.
The end result is not having Xen is making Linux hard to use in an emerging platform - cloud computing. I don't doubt there are real issues - the fact that Xen uses the Dom0 to talk to the hardware sounds to me like it has the makings of a real ugly patch. However Xen isn't a webcam that can be ignored. Xen is an entire platform - like Windows or Linux. And it is an open source solution locked in battle with closed alternatives. I want it to win - after all I could just use VMware. If Xen doesn't win, possibly no open source solution will. KVM is not even a player in this space.