Last I checked Squeeze had a fairly straightforward Xen 4.0 package. I did have trouble with dropped packets, but I was doing some pretty complex stuff and it was already fixed upstream.

How exactly are you trying to setup networking? Bridged, routed, NAT on dom0 vs domU?

These two pages might help you, though both are slightly out of date:

http://www.pc-freak.net/blog/how-to-configure-and-enable-xen...

http://wiki.kartbuilding.net/index.php/Xen_Networking#Two-wa... (more out of date, but ideas are correct)

EDIT: ZFSonlinux is worth looking into as it's becoming fairly mature and provides the perfect storage for xen instances.