I'm setting up some LV's to feed to a XenServer 5.0 test bed. These will eventually be running Citrix PresentationServer 4.0 virtual machines.
When one sets up logical volumes to present to the virtual layer, one has a choice between File I/O and Block I/O. I've set up Virtual Iron using File I/O, but haven't seen any definitive answers about XenServer.
I would go with file I/O with your Xenserver.
If your not into production yet, you may also want to test block I/O.
results may vary with your hardware and network