Xcode explicitly supports running external command-line tools in a full-permission, unjailed shell; which is entirely contrary to the iPadOS permission model.
Apple's approach seems to be to use Swift packages as an alternative project type that can be shared across iPads and Macs and, most importantly, do not require support for running binaries outside of an app container.
How this evolves over time depends on Apple's opinions about their operating systems. If they were to basically hand people what amounts to a manufacturer-sanctioned jailbreak, then they could port Xcode to UIKit with all the functionality it has on MacOS, save for the lack of AppKit support. Alternatively, and more likely, what they'll do is add new app extension types to do Xcode-like things in Swift Playgrounds. So if you need to, say, use Rust code in your app; you'd literally download a Rust compiler from the App Store to do that.
Or they could do nothing and be satisfied with the hobbyist-grade, Swift-only programming environment they already ship.
Swift Playgrounds on iOS supports building apps and submitting them to the App Store. It seems like a 'trivial' extension to add in support for XCode Cloud to Swift Playgrounds.
A14/M1 and higher all have the hardware for virtualization, nothing is fused off for "devices". iOS and iPadOS don't ship Hypervisor.framework but the kernel still recognizes the entitlements for using it. Apple will never sign provisioning profiles with those entitlements, of course; but on at least one particular OS version with a jailbreak you could set up hardware virtualization. See https://worthdoingbadly.com/hv/
The main problem is purely just Apple not seeing a use case for virtualization on a touchscreen. They need to let go of at least one Strongly Held Belief.
Apple's approach seems to be to use Swift packages as an alternative project type that can be shared across iPads and Macs and, most importantly, do not require support for running binaries outside of an app container.
How this evolves over time depends on Apple's opinions about their operating systems. If they were to basically hand people what amounts to a manufacturer-sanctioned jailbreak, then they could port Xcode to UIKit with all the functionality it has on MacOS, save for the lack of AppKit support. Alternatively, and more likely, what they'll do is add new app extension types to do Xcode-like things in Swift Playgrounds. So if you need to, say, use Rust code in your app; you'd literally download a Rust compiler from the App Store to do that.
Or they could do nothing and be satisfied with the hobbyist-grade, Swift-only programming environment they already ship.