vncunused problem with Windows on Xen 3.4.1

Recently I upgraded a Xen server to 3.4.1 and encountered a strange problem. I've upgraded similar servers before without any problems, but on this one the Windows XP guest complained:

# xm create /etc/xen/winxp.cfg
Using config file "/etc/xen/winxp.cfg".
Error: Domain 'winxp' does not exist.


The log files were quite sparse with information but the relevant sections of xend.log seems to be:

[2009-11-06 15:44:14 5365] WARNING (image:493) domain winxp: device model failure: pid 22777: exited with nonzero status 1; see /var/log/xen/qemu-dm-winxp.log
[2009-11-06 15:44:14 5365] WARNING (XendDomainInfo:1878) Domain has crashed: name=winxp id=20.
[2009-11-06 15:44:14 5365] ERROR (XendDomainInfo:2012) VM winxp restarting too fast (Elapsed time: 0.285470 seconds). Refusing to restart to avoid loops.


And qemu-dm-winxp.log was equally silent about details:

domid: 22
qemu: the number of cpus is 1
config qemu network with xen bridge for tap22.0 xenbr0
Watching /local/domain/0/device-model/22/logdirty/next-active
Watching /local/domain/0/device-model/22/command
qemu_map_cache_init nr_buckets = 10000 size 4194304
shared page at pfn feffd
buffered io page at pfn feffb
Guest uuid = 3ef34fd1-842d-0cbd-9782-29d8d597c36b
Time offset set 0
populating video RAM at ff000000
mapping video RAM from ff000000
Register xen platform.
Done register platform.
xs_read(/vm/3ef34fd1-842d-0cbd-9782-29d8d597c36b/log-throttling): read error
platform_fixed_ioport: changed ro/rw state of ROM memory area. now is rw state.
xs_read(/local/domain/0/device-model/22/xen_extended_power_mgmt): read error
xs_read(): vncpasswd get error. /vm/3ef34fd1-842d-0cbd-9782-29d8d597c36b/vncpasswd.
bind() failed


And only the last line seems to be the problem. Googling a bit turned up this link, which suggest to comment out vncunused = 0 and VOILA the Windows domain now boots again.