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1. Does the VDSManager work for nodes and clusters VDS's?
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No
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2. Do your systems run on Debian 5 ok?
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For VDSmanager-Linux we are recomend use CentOS 5.3 on the node machine, for VDSmanager (VDSmanager-SMP) FreeBSD you need use FreeBSD 6.3
VDSmanager-Linux it's grafical interface for another virtualization, when you install this product you can choose OpenVZ, Xen or VServer, but better choose - OpenVZ.
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3. did an install and no luck on debian, will try again.
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See answer 2. You can run install again, but try install to CentOS server and choose OpenVZ.