Kubernetes is designed for running Application Container images (e.g. docker, oci, appc) and in this case those containers are running not as Linux containers on a shared Kernel but inside of a VM with Xen/Hypernetes. Another implementation of this "app container in a VM" concept is Clear Containers which is available in rkt[1] and can, like Hyper, run the application container image formats (docker/appc).
This is all a bit confusing so let me know if this helps :)
The broad approach isn't new (https://clearlinux.org/features/clear-containers describes Intel's Clear Containers work which allows you to use rkt to run containers in individual lightweight VMs), but the trick in this case is to perform the isolation at the pod level (ie, a collection of functionally related containers) rather than the individual container level.
(Edit: Apparently the Docker support for Clear Containers hasn't gone upstream, so dropped the reference to it)
You can use OCI Runtime bundles with rkt if you use the oci2aci[1] tool and rkt will be a full OCI runtime once the OCI Runtime and Image spec mature. We can use help to get these OCI projects[2][3] to v1.0 if you can spare cycles!
[1] https://github.com/huawei-openlab/oci2aci
See https://blog.docker.com/2016/04/docker-engine-1-11-runc/
Make sense?