The following paragraph shamelessly stolen from kvm FAQ, but I suppose this information should be quite useful to anybody who is still deciding which product to use.

Xen is an external hypervisor; it assumes control of the machine and divides resources among guests. On the other hand, kvm is part of Linux and uses the regular Linux scheduler and memory management. This means that kvm is much smaller and simpler to use.

kvm only run on processors that supports x86 hvm (vt/svm instructions set) whereas Xen also allows running modified operating systems on non-hvm x86 processors using a technique called paravirtualization. kvm does not support paravirtualization for cpu but may support paravirtualization for device drivers to improve I/O performance.

The upcoming 2.6.20 Linux kernel is bringing a nice virtualization framework for all virtualization fans out there. It's called KVM, short for Kernel-based Virtual Machine. Not only is it user-friendly, but also of high performance and very stable, even though it's not yet officialy released. This article tries to explain how it all works, in theory and practice, together with some simple benchmarks.