That's exactly as I thought :) For now, a safer way around this, I moved the /var/lib/xend/saved folder to it's own LVM volume, and re-mounted it on /var/lib/xend. So now /var has 1.4GB free space from 2GB
2G for /var still looks a bit on the small side to me...
/var can be umounted if necessary. Just stop all daemons that write to it and anything else that reads or otherwise has a file handle under /var. Been there, done that.