They still have some performance advantages over all competitors.
But if you are not enterprise, I see no point in paying their prices.
As you say, free products have caught up and are just good enough.
The VMware thing was that they figured out how to make virtualization on i386 compatible hardware hobble along despite the hardware architecture being technically unvirtualizable, using clever binary translation style tricks. Virtualization support came to x86 hardware many years later.
If Xen has a show stopping bug I get to patch it myself.
Oh you mean technical reasons? None.
Alternative exist, but VMWare has a lot of mindshare and their products are pretty good, so they're hard to beat.
Didn't Citrix buy xen a while back (or some part of it)? They had something called xenapp, now apparently "Citrix Virtual Apps and Desktops (XenApp & XenDesktop)"?
Not really the same as "a supported xen distro" I guess.
Also, I'm pretty sure if there's a Xen bug you can throw Citrix under the bus (assuming you're paying them for enterprise support).