This booting error is because the Xen PV guest image uses the Xen kernel, this is not compatible with anything but a host running a Xen kernel.
I did a kpartx -av virtual.img and then it created some partitions that showed up in fdisk.
I mounted it and did a chroot into it and removed the xen kernel and installed a normal kernel but Xen still shows the same kernel in Grub (only the Xen one).
This is strange but it seems like this Xen PV guest has some sort of hidden or........
yum exits in the middle
The problem is this VPS seems to be an OpenVZ template from HyperVM. The only way to make it work was to disable i386 packages since this was an x64 kernel. That shouldn't be necessary but it was the only way to make yum stop quitting after the first package or two. I couldn't find any issue by checking the logs either.
echo y|yum install vim-minimal telnet expect jwhois net-tools slocate iptables elinks gawk