Guest driver is not "license type" relevant (it must be compatible with VGX protocol). Host driver (XenServer/ESXi) pushes requested license types to Guest paravirtualized/mediated driver and Guest driver ask for license.
If you have Host driver "367.123" (that is bundled with Guest driver "370.17") than Host side "/usr/share/nvidia/vgpu/vgpuConfig.xml" signed file for M60-1Q requests one of license "GRID-Virtual-WS,2.0;Quadro-Virtual-DWS,5.0;GRID-Virtual-WS-Ext,2.0" in Guest. M10-1Q + 367.123/370.17 + license server 5.1/2017.11 works for me OK. If you have older Host driver (for example "367.106") the requested licenses are "GRID-Virtual-WS,2.0;GRID-Virtual-WS-Ext,2.0" ! You should upgrade Host driver. If you already upgraded Host driver the old license request string may be stuck in some registry setting (try to do some regedit cleanup or reinstall Guest driver).
The licenses are not enforced in Grid4 probably due to licensing/marketing chaos (and problems like yours) and license server cannot handle "none" license request for K1/K2 cards. You can ignore "license pop-up" or stop license requests (delete regkey "GridLicensedFeatures" in "CurrentControlSet").