xautoload classes in subfolders
Bugs bugs bugs.

    'entity class' =&gt; 'Drupal/myentity/class/MyEntity',
    'controller class' =&gt; 'Drupal/myentity/controller/MyEntityController',


This should be

    'entity class' =&gt; 'Drupal\myentity\class\MyEntity',
    'controller class' =&gt; 'Drupal\myentity\controller\MyEntityController',


And:

namespace Drupal\myentity\class\MyEntity;


This should be

namespace Drupal\myentity\class;


(and btw, is "class" really a valid namespace part? Won't PHP complain?)

And:

sites\all\modules\myentity\lib\Drupal\controller\MyEntityController.php


This should be:

sites\all\modules\myentity\lib\Drupal\myentity\controller\MyEntityController.php


EDIT: One more:

class MyEntity extends Entity {


should be

class MyEntity extends \Entity {


Because class Entity is in root namespace.