It's a changed special case more than a new special case for selection, yes. Although it'd be really nice to get rid of PAE vs non-PAE, much like we got rid of smp vs non-smp.
The internals to make that possible are significantly more of a pain in the ass than the SMP case was. I suspect it won't ever happen. What will probably happen is that eventually no non-PAE mode is optimal on non-ancient hardware, so i686 always being PAE and i586 being non-PAE will be what to do.
But for _booting_, real hardware can boot and run the i586 kernel. Xen PV guests can *only* boot the PAE kernel. That's what makes this a new and different special case.
Gotcha.