I use Ubuntu 9.04 (the most recent version that the VPS host provided) on a Xen VPS. The kernel version seem to be something Xen-specific: 2.6.18-194.32.1.el5xen.
I would like to have the most recent version of Ubuntu Server, 10.10. Can I upgrade my VPS to 10.10 or do I need to stay with this version because it seem to be a Xen-specific kernel?
Whether or not you "Can" (Derek seems to have shown that its possible), its not supported officially.
To be sure all of the corner/special cases are handled, what you will need to do is upgrade through the two releases between.. 9.10 and 10.04.. before you get to 10.10.
This is pretty simple, just run
This will perform all necessary actions to get to 9.10. Then reboot, and go to 10.04, then 10.10.
Definitely do so soon, 9.04 has not had security updates since October 2010, and 9.10 will stop receiving updates in April of 2011 (as of this writing, next month). Unless you really need something in 10.10, its a decent idea to stop at 10.04, since that way you won't be forced to upgrade for another 4 years from now (its supported for 5, and came out about a year ago).
I have a Xen HVM VPS, and I am able to install whatever operating system I want as long as I have the ISO for it. I downloaded the Ubuntu 10.10 minimal ISO for 32-bit and it worked fine. I didn't seem to need a Xen-specific iso.