For the sake of future googlers, if you are running a Xen server on Debian Etch and want to upgrade to Lenny..First, you don't need linux-image-2.6.26-1-vserver-686.
Read more here
The howto I read for Lenny had me run the vserver as Dom0, but that is no longer necessary: both dom0 and domUs can use the same linux-image-2.6.26-1-xen-686 image. But you DO need xen-hypervisor-3.2, and not the old 3.0 version. Why doesn't apt do these things for you? Hellifiknow.
Second, the debian scripts are screwed up. When you want to start your guests, you need to first manually run