If he goes down the Xen route he shouldn't have an issue at least with the first item.
I currently work for an ISP and we use Xen extensivelly.
With 2 dual core xeon CPUs we are able to run 10 VPS per physical node withou problems.
I expect to run 16 VPS per physical node on quad core servers.
For what I have seen in the forums, the problem with overselling is precisely the opposite of XEN.
Since Virtuozzo based technology allows to over allocate resources, VPS providers tend to be greedy and push the server to unacceptable loads.
In XEN, physical memory is reserved per VPS and overselling (at least memory) is not allowed.
Of course, the Xen virtualization in itself has more overhead, but by keeping the number of VPS per physical node to an acceptable number and moving VPS to least loaded noades during load times, I believe it is possible to provide a good VPS service.
Maybe your first option to strongly consider the costs of starting your own operation.
You have to consider things like datacenter: colocate or own facility
who will maintain the equipment
You have to strongly consider the above, if you have the bucks and a solid business plan with a customer service focus and not a price war you will be setup for success.
Its an interesting time because there is a lot more hype and publicity on virtualization. I think the providers who do a fantastic job at customer service and excellent service offering will be in a unique situation for massive growth.
Another option is to partner with a provider that will allow you to resell vps, dedicated servers and so on with your own storefront branding, company name, merchant processing.
basically look at piggy-backing off a provider who is already setup.
this allows you to start for very low funds and you can focus on advertising/marketing and acquiring your customer base.