I think there's a little confusion about wording, so let me clarify this first.
- VMware ESX(i) - Bare metal hypervisor, installed on a physical system
- Citrix XenServer - Bare metal hypervisor, installed on a physical system
- Citrix XenApp - Application virtualization based on MS Windows Server
So what you need is either ESX(i) or XenServer installed on the physical system.
Then you can configure virtual machines like XenApp.
I guess the reason, your supervisor wants to have XenServer is because of licensing. Citrix includes various licenses in it's Platinum editions.
Personally I am a consultant and have many customers with tons of virtualized XenApp loads running on XenServer 5.x and/or ESX(i) 4. And - to be honest - both hypervisors work. With current hardware (e.g. 2 x Intel E5440, 20GB RAM, BBWC) I usually have up to 4 XenApp servers running on each physical system without any issues. You may have a small penalty compared to a physical installation, however because of being able to run multiple VM's you have a huge cost saving effect (hardware, power, cooling, cabeling...).
The only thing you absolutely should make sure, is that your physical hardware is on the vendor's HCL.
André