First, some empty disk space is needed. Let's create a logical volume for our new virtual machine:

root@xenserver1:~# lvcreate -n testlv -L 10G vg0
  Logical volume "testlv" created

Create a filesystem on the new logical volume:

root@xenserver1:~# mke2fs -j /dev/vg0/testlv
mke2fs 1.40-WIP (14-Nov-2006)
Filesystem label=
OS type: Linux
Block size=4096 (log=2)
Fragment size=4096 (log=2)
1310720 inodes, 2621440 blocks
131072 blocks (5.00%) reserved for the super user
First data block=0
Maximum filesystem blocks=2684354560
80 block groups
32768 blocks per group, 32768 fragments per group
16384 inodes per group
Superblock backups stored on blocks:
        32768, 98304, 163840, 229376, 294912, 819200, 884736, 1605632

Writing inode tables: done
Creating journal (32768 blocks): done
Writing superblocks and filesystem accounting information: done

This filesystem will be automatically checked every 25 mounts or
180 days, whichever comes first.  Use tune2fs -c or -i to override.

Create a mount point:

root@xenserver1:~# mkdir /mnt/test

Mount the new filesystem

root@xenserver1:~# mount /dev/vg0/testlv /mnt/test

Bootstrap the new system. For this, we will use a utility called "debootstrap", which can bootstrap a fresh Ubuntu installation easily:

root@xenserver1:~# apt-get install debootstrap
root@xenserver1:~# debootstrap feisty /mnt/test

After the system is bootstrapped, kernel modules must be copied inside the guest system for it to be able to load them during startup:modules:

root@xenserver1:~# cp -a /lib/modules/2.6.19-4-server /mnt/test/lib/modules/

Guest system's /etc/fstab must be created:

root@xenserver1:~# nano -w /mnt/test/etc/fstab

proc            /proc           proc    defaults        0       0
/dev/sda1       /               ext3    defaults,errors=remount-ro 0       1

Give the guest a hostname:

root@xenserver1:~# echo "test" > /mnt/test/etc/hostname

Umount the filesystem so that we can boot from it:

root@xenserver1:~# umount /mnt/test/

Create a Xen configuration file:

root@xenserver1:/etc/xen/auto# nano -w /etc/xen/auto/test

kernel = "/boot/vmlinuz-2.6.19-4-server" # Your kernel image
ramdisk = "/boot/initrd.img-2.6.19-4-server" # The initial ramdisk
memory = 128 # Number of megabytes allocated
name = "test" # Virtual machine name
vcpus = 4 # Number of virtual CPUs the guest sees
vif = [ 'mac=aa:00:00:00:13:13, bridge=xenbr0' ] # A network interface
disk = [ 'phy:mapper/vg0-testlv,sda1,w' ] # The root disk
root = "/dev/sda1 ro" # Root partition the kernel mounts first

Boot the machine:

root@xenserver1:~# xm create -c /etc/xen/auto/test

Log in:

Ubuntu 7.04 test tty1

test login: root

The root password is initially empty, which is not very secure. Change root password:

root@test:~# passwd
Enter new UNIX password:
Retype new UNIX password:
passwd: password updated successfully

Configure network:

root@test:~# vi /etc/network/interfaces

auto lo eth0
iface lo inet loopback
iface eth0 inet dhcp

root@test:~# /etc/init.d/networking restart

Install some useful packages:

root@test:~# apt-get update
root@test:~# apt-get install language-pack-fi
root@test:~# apt-get install nano cron bash man
root@test:~# apt-get install openssh-server

That's it! You now have a working virtual machine ready for use.