I'm having the same problem with an early-2008 Xserve. Clean install of Lion and after "Start Using Lion" it's just sitting there on the gray apple logo screen. The drive indicator light was showing a lot of activity, but finally stopped. Did force shutdown (held down front-panel power button) and restarted at that time. System booted up, and appeared ok. Mouse ok, but using a random (PC) USB mouse with physical buttons.
I split my RAID 1 drive set, since I had problems with the installer, and discovered on the net that Lion installer doesn't like RAID when trying to create the recovery partition.
Running Server.app right now, so we'll see what happens. I'm just doing a clean setup at this time, and will migrate data from my backup later.
If nothing else, I share your misery!