There is a xen kernel for SME 7.3. I use the free citrix xencenter express edition, which has a Windows GUI very much like vmware's server. It runs on IVT or AMD-V hardware, and allows vm's to run automatically at boot, so its a true VM server. It allows you to import & export the vm's, and clone them.
It uses templates to load the OS, or you can load with a CD using the 'Other Install Media' template. The OS templates load using urls that contain the install tree, and automatically selects the correct (xen) kernel, etc when it loads.
For SME 7.3, I selected the Centos 4.6 template, and then pasted the following site into the Install Url in the Location section:
http://distro.ibiblio.org/pub/linux/distributions/smeserver/releases/7/smeos/i386/ I gave it 512 megs ram, and 8 gigs of storage.
Loading an OS over the web is a bit slower, but when its finished you'll have a xen-aware VM. You will still have to install xs-tools when its done, but thats simple...
I backed up my stand-alone SME box and restored it to the VM, and I'm just running down the tweaks I've done that arent working (that werent transferred in the backup). But it runs very much faster than it used to.
My next project is to transfer my trixbox server to VM, and then I can shut off two servers...