Xen is great for many things, especially for performance. With help from newer processors it can essentially run a virtualized OS at close to native speeds. You could do the same with commercial offerings from VMWare but as far as free solutions go it doesn't get much better than this. Having separate VMs for each service does indeed make it easy to scale but you don't need to go through this overhead from the start. Instead try to focus on building share nothing architectures that can scale horizontally and then you can worry about VMs at a later point.