I don't know why the GPU support should be lacking with a Type-1. That runs bare metal, and you're running a full OS under that sans any host OS in between. So if the support for the GPU is in your OS instance, you should have access to it. But I'm not that big a workstation type so I'll defer to those who do more with those than me. If you say it's a problem, you'll get no argument from me.
This is a summary of the info I found when I looked into using Xen as a hypervisor sometime last year:
Xen is an hypervisor that runs on metal (the pc / server) and then hosts virtual machines called domains.
A Xen PV domain is a paravirtualized domain, that means the operating system (usually we're talking linux here) has been modified to run under Xen, and there's no need to actually emulate hardware. This should be the most efficient way to go, performance wise.
A Xen HVM domain is hardware emulated domain, that means the operating system (could be Linux, Windows, whatever) has not been modified in any way and hardware gets emulated. This is rather slow, so usually you install PV drivers in the guest os for critical hardware (usually disk and network), so the guest as a whole will run fully virtualized but the most performance-critical pieces of hardware will run paravirtualized. Recent linux systems have pv drivers for both disk and network in the kernel, and there exist various PV drivers for Windows too. With all the development on HVM in recent years there usually is little difference in performance between HVM and PV for standard workloads.
Since Windows is proprietary, it has not been modified to work with Xen. Therefore, it can only be configured under Xen as an HVM, which means all the hardware is emulated and thus slower. This is especially true for non-standard workloads, such as gaming.
Or at least that's my understanding of the info I've found. That said, I'd love to be proven wrong, because I really like the idea of using a hypervisor instead of a bunch of VMs.