I found a solution to the problem in Jaunty.

To use SMP efficiently with Windows you need the ACPI Multiprocessor HAL
profile. It seems you can only get it during the install if Windows
detects that your HW fits that profile. The only solution I've found so
far is to reinstall with ACPI enabled and make sure during install that
the Multiprocessor HAL is selected.

The problem, in my case, is that virt-install did not enable ACPI even
though I had asked it to do so.

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KVM eats 100% CPU, Host Hardy64, Guest XP with more than 1 VCPU
https://bugs.launchpad.net/bugs/228442
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