Convert Physical Machine to Xenserver

you could continue doing what you're currently doing with a few minor changes to your rsync backup scripts.

rsync can run inside a VM and backup to a remote host via ssh, just as it can from a physical machine. e.g. i backup /etc, /usr/local/, /home, parts of /var and a few other directories from all my machines to /var/backups/hosts/$HOSTNAME on my backup server (which, in turn, gets backed up with rsync to another machine and also to tape). database servers also run scripts which dump their dbs to text before the rsync.

to restore, just create a new VM (it's handy to have a few minimal-install images of various sizes that you can just clone), and rsync the backed-up files back in.

BTW, i usually don't bother backing up /bin, /sbin, /usr because i run debian on almost all machines. it would waste too much disk space and waste time to backup programs i've got packaged in my local debian mirror. instead i backup the list of installed packages with dpkg --get-selections "*" > $hostname.sel and restore them with cat $hostname.sel | dpkg --set-selections ; apt-get dselect-upgrade.

this is how i currently clone physical machines...i'm in the process of converting several machines to virtual (running under KVM) and so far haven't found any reason why i'd have to make more than minor changes to the procedure for that.

one of these days, i'll change to using rdiff-backup rather than rsync so i can have versioned backups online as well.

finally, you could also try searching the http://libvirt.org/ web site or googling for "+libvirt +rsync". someone may have come up with an efficient method of rsyncing VM images directly.

You'll be fine with Xen on that machine then just add an OpenFiler (or similar) NAS VM to share your disk - it's pretty straightforward but I'm a little worried about your memory, you may need to consider adding more for all the VMs you're planning on.