Well, you have many options open to you. First of all, disregard the linux kvm website and start looking at the linux kvm developer mailing lists. It looks like someone is working on a PowerPC port of KVM. That might give you some ideas about the the processor dependent parts. Second of all, you should probably also take a look at Xen for ARM again since they have made some progress and it's always better to contribute then start from scratch. Third: Keep in mind that you're talking about virtualization, not emulation. AFAIK, puppylinux does not have an ARM port (not that this would be very hard); virtualization means running another OS compiled for the same architecture. For a lightweight linux system to virtualize you might be interested in OE/Angstrom (openembedded.org angstrom-distribution.org). Good luck!

-John