It looks to me like the xencons solution is fixing another problem: Bug #139046.
This problem doesn't have anything to do with the console, since it actually renders the machine unbootable. Nothing happens after the filesystem driver is loaded, with the box spiking at 100% CPU usage and no network coming up.
The workaround I've found in the meantime is to install the 2.6.19-4 kernel mentioned above on the xen dom0 and domU machines, then specify that as the kernel to boot from in the configuration for the domU machine.
Installing the kernel on the domU box is necessary so that all the loadable modules are available, since the kernel isn't compiled with the needed modules statically.