I'm facing similar problem in openstack/nova-compute context
We are using libvirt as default KVM to spawn the instances.

I faced the problem ONLY when the directory where it creates the console.log 
was nfs mounted (Not local disk path)
Indeed I too have <serial> in the XML file -which is where the problem occurs.

But when using local file system, everything works OK.

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https://bugs.launchpad.net/bugs/632696

Title:
  libvirt won't start a VM with serial or console

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