Question: I have XEN Server installed and running several VM's on a newer dell server with hardware raid. My concern is what happens if one of the drives fails? Can XEN server be configured to receive that error and alert someone?

Answer: 
Since this is a Dell server, you should install OMSA managed node on it, and use that to send email and SNMP alerts about hardware issues.
Another option is to use the alerts in the DRAC, but those don't cover storage issues iirc.
OMSA also gives you the possibility to run executables (e.g. shell-scripts) on warning or critical-type storage events.

In that script you can check whether your array is degraded (using omreport storage ...).
If that`s the case you can start further things (e.g. live-migrate to another XEN-server). 

Once OMSA is installed smartd will possibly also capture harddisk-events (I did not verify this deeply).

I for myself trigger a mail to root using OMSA so a human can take action (call support and get a replacement disk) before the next disk fails, for example.

If you've got a DRAC-Card other than DRAC4 (older or newer) the DRAC itself won't alert upon hard disk failures, OMSA will however.