Comment 3 for bug 1431473

To show that this issue is actually kernel (rather than host kernel not having nested enabled), i booted into trusty kernel on the same 'system 1' above.
$ uname -r
3.13.0-46-generic
$ dpkg -S /boot/vmlinuz-$(uname -r)
linux-image-3.13.0-46-generic: /boot/vmlinuz-3.13.0-46-generic
$ lsmod | grep kvm
kvm_intel 143187 0
kvm 455835 1 kvm_intel

$ kvm-ok
INFO: /dev/kvm exists
KVM acceleration can be used