If you're selling hosting the only licensing model that you can use is SPLA, Service Provider License Agreement.
With SPLA the licenses are paid monthly.
You can sign a SPLA agreement with one of Microsoft's partners: HP and Insight (I think there are other in US as well but these are the most known).
You can license Windows on XEN in one of the two ways:
(1) either use a regular Windows Standard Edition for each virtual machine running Windows (same as it would be adedicated server) for each physical processor allocated to it (full CPU physical socket is licensed not cores, you can have any number of cores per CPU)
(2) or pay for a single Windows Datacenter Edition license for each physical processor of the physical machine and run as many Windows virtual machines as you want.
That's the general idea, you should find plenty of materials from Microsoft on the subject.