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This might sound like a stupid question but i haven't had the correct answer yet.

If i have a high configuration vps from say Rackspace or any big company, then can i use Xen or any other virtualization on it for creating smaller vpses of reduced configuration ?

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You can. Without hardware virtualization support Xen provides only paravirtualisation which requires modified system software in the guests. Most Linux distributions come with Xen-compatible kernels. I think windows doesn't work on it.

But in general: Because you can it doesn't mean you should.

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One of the experts i have contacted previously told me that the kernel will face conflicts in case there are any upgrades or modifications. Is it true ? –  Sameer Manas Apr 22 '12 at 8:15
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That's a possibility. That's why I said it's a bad idea :) There are tons of issues that might arise. –  Lucas Kauffman Apr 22 '12 at 8:16
    
Thanks for the clarification :) –  Sameer Manas Apr 22 '12 at 8:29
    
With XEN there should be no problem as long as the DomU-xen-part is not much newer than the Dom0-xen-part. –  Nils Apr 22 '12 at 20:39
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I started my first experiments with XEN on a VirtualBox instance which was running on an XP-Laptop.

So the answer is - yes, you can. But only certain combinations will work. Only the first level of VM can take advantage of hardware-virtualization - the second must use software based features.

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