As for using the "cache" parameter with libvirt: this was buggy in Karmic and 
works correctly only in Lucid.
See this for details: 
https://bugs.launchpad.net/ubuntu/+source/libvirt/+bug/531741
The bug was fixed in libvirt 0.7.5-5ubuntu11 and Lucid's current version is 
0.7.5-5ubuntu27.

-- 
Slow disk IO for all guests with all disc modes and types.
https://bugs.launchpad.net/bugs/550409
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