Basically XP/VS Server can also be installed on virtual machines.
However, the license of XP/VS Server is bound to the MAC Address of the guest’s primary network interface à Further information you will find here: Licensing on virtual machines
But you have to take care if you choose a hoster who offers operating-system-level-virtualization technology, for example Parallels Inc. with its server virtualization solution “Virtuozzo”.
Virtuozzo is an operating system-level virtualization product designed for large-scale homogenous server environments and data centres.
But Virtuozzo blocks any foreign kernel-mode drivers from running in a VPS (Virtual Privat Server).
That is – from their point of view – necessary to prevent things like blue screens, because with operations system-level virtualization a blue-screen on one VPS would cause a blue screen on all other VPS as well.
XP/VS cannot be used without our kernel driver and therefore is not compatible with operating system-level virtualization like Virtuozzo.
To be sure you may try to install „Process Monitor" from Microsoft (you may download here) - it does not work either!
So you'll have to find another hoster that does not use operating system-level virtualization