This is a very important point. I would look at as, if it is in the kernel, it means Linux and Xen are packaged together. If it is out of the kernel, then Xen and Linux are too separate packages.
This is a key point. If they are as one package, and a change in Linux breaks the interface between kernel and hypervisor, the fix would be to update the hypervisor to handle the new change.
If they are two packages, and Linux breaks the interface between kernel and hypervisor, then the fix would be to redesign the Linux change to cope with keeping the same ABI to the hypervisor. This is a burden that the maintainers do not want to carry.
Having the two as one package would mean if you upgrade one, you also upgrade the other. A subtle point indeed, but an important one.
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