Xen was chosen for a minimal TCB, with the plan of moving stuff out of Dom0 like networking now and filesystem(s?) next?/later.
Of particular interest is the graphics system, where the code running in Dom0 was kept as small as possible (2,500 LOC, with no plans for fancy 3D).
ADDED: From a message on the mailing list, an explicit decision was made that each VM would have its own X server: applications sharing one are not isolated, trying to fix that would be "non-trivial" (quite an understatement!) and "the X protocol and X server alone present a huge attack surface". Indeed....
If I had a spare machine that could run it I'd be kicking the tires right now.
Is there a fundamental difference? (I understand the technical difference - I'm asking more in terms of semantics - what makes this a better security model?)
And the granularity is at a very high level; I gather few want to wade into the details of SELinux, and if I hadn't been exposed to the concepts for 30 years (sic, I started learning Multics in 1979) I probably would have just turned off SELinux when I was using Fedora last year.
On the other hand, if usability drops because the VMs are actually isolated - and this seems to be the approach that was taken - users will simply consolidate more applications on one machine, and infect everything at once this way.
The architecture envisions consolidating applications by domain, e.g. one for your social networking, one for banking (and that would be very locked down, e.g. http(s) only), etc.
It accepts that there will be comprise (or so I gather) and is explicitly designed to mitigate it. For me, that improves security significantly (I already do a form of this by running three browser instances on two machines).
It's a very pragmatic approach, and I can see from the lead's background why she'd take it.