I think I found the culprit of this:
Daniel P. Berrange wrote on 11/21/2008 11:13 AM:
> - Allocate capabilities info before initializing inotify driver
> because loading XM config files /etc/xen requires this
>
...
> - if (!(priv->caps = xenHypervisorMakeCapabilities(conn))) {
> - DEBUG0("Failed to make capabilities");
> - goto fail;
> - }
If I undo this part of your patch, everything else works as designed.
While I have no evidence yet to support this claim, I think this is failing trying to open the xend socket, perhaps before the xend driver is open...
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