This may seem like a stupid question but how does one go about create
a VBD that can be used with the netbsd-INSTALL-XEN3_DOMU kernels for
installation?

I have created a disk image with "dd if=/dev/zero of=nbsd-disk bs=1k
seek=2048k count=1" and am able to start and enter the NetBSD
installation program through the DOMU kernel, but when after going
through the partition and disklabel steps, I get this error as it
attempts to create the filesystem:

"disklabel: Can't read master boot record 0: Input/output error"
"disklabel: /dev/rxbd0d: Input/output error"

My xen config file uses this line:
disk = [ 'file:/home/msun/nbsd-disk,0x1,w' ]

Do I need to fdisk the file disk image?  Or manually disklabel and
create a filesystem on it?