Yes, and that's good - I use KVM with paravirt network and disk devices for Windows hosts. Still, many things (i.e. memory access, real CPU mapping, even the kind of architecture the guests report as having) have to be emulated. Paravirt devices are a great boost, though - And by being much simpler, say, than hardware-specific drivers, I am also reducing the most common cause for Windows' instability.
Now, both with Xen and with KVM (and I'd expect with any other virtualization technology) you can forward a real device - Just remove support for it on the host (or Dom0) kernel and ask the virtualizer to forward the needed interrupts/mapped memory space/bus address, and you have it natively inside. Of course, you lose the ability to perform live migrations - But you cannot always win! :)
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