The main idea behind living a paleo diet is to eat a lot of veggies, free range proteins, fruits, nuts & seeds. You'll notice there was no mention of paleo pancakes, or paleo pizza or you get the point.
Paleo is all about getting back to what our ancestors ate before our bodies became sick from the everyday foods we were consuming.
So the question isn't is xylitol paleo, it's more about does it belong in your diet? We do not use xylitol in an of the food at Caveman Grocer. We try to keep all sweeteners, raw or processed out as much as we can. While we do have the occasional paleo snack that will use Maple Syrup or honey, our meals are completely sugar-free. Why? Because our clients just wouldn't see the results they were looking for if we did.
If you're going to have a treat with xylitol every once in a blue moon, it's sure not to do any major damage. However constantly consuming sweet, "paleo-fied" treats will not get you any of the results you are looking for when following a paleo diet.