VMX guests don't cause dom0 to auto-balloon as paravirt guests do. Probably just needs some logic brought over to the vmx builder
Hrmm, it's all common code. tools/python/xen/xend/XendDomainInfo.py:initDomain() is where the balloon call occurs and then it's followed almost directly by the memory_increase_reservation.
Urk, this is caused by the device model requesting more memory to store the video RAM in. Bad hack committed to CVS so that we account for that when ballooning at domain creation, but it needs a better solution for upstream/long-term. Filed upstream as http://bugzilla.xensource.com/bugzilla/show_bug.cgi?id=521
A nice fix for this went upstream earlier today