I was a big Xen guy back in the day.
The big takeaway from Hamilton's talk was actually something that dawned on me when they released the c3/m3/i2 instances which is what they have done with SR-IOV.
The software stack that implements the AWS VPC fast path must be running on the NIC itself. This is a big deal.
Being able to implement the require isolation/tunneling/encapsulation logic and routing in the NIC is a huge performance boost and drastically simplifies the hypervisor. Well, the software portion of the hypervisor atleast.
If you listened closely to the talk he laid out the differences in latency impact of each layer in the networking stack, from the fibre (nanoseconds) up to the software stack at some number of milliseconds, several orders of magnitude worse than anything else in the stack.
The reason why the quoted latency is so large is how para-virtualized networking is implemented. In order for it to be (bandwith) performant it needs to use large ring buffers with many segments. This is very throughput optimised and latency suffers a ton as a result.
By moving all of the queuing to the NIC you get a bunch of benefits, namely the dom0 (basically the host in Xen terminology) is no longer involved in pushing packets and you are not incuring the cost of the Linux networking stack 2x. In the paravirt model the skbs are transferred across the circular buffer into the host OS where they are injected into a virtual interface, thus traversing the full net stack again.
In the SR-IOV model the address space of the virtual NIC is mapped into the guest OS using Intel's IO-MMU extensions and the guest is then able to communicate directly with the NIC, thus 100% bare metal performance.
If SR-IOV was the only improvement it would be impressive, however it's the consequence of it's existence which makes the biggest difference. If the guest is talking directly to the NIC, then all of the encap/decap is HW accelerated too and in theory this means the full networking stack is end-to-end in HW.