newlib libraries are included. That is the libc.a that is linked in to your project by default. You do not have to do anything special.
As far as malloc goes, personally, I think the point of view that you should not use malloc in an embedded system is quite extreme. To me, a design running uclinux on MicroBlaze is an embedded system. In such a system, regardless of what the user app does, there are tons of kmalloc calls going on in the kernel. These are the days of phones running Java VM's with garbage collection.
That said, you need to be aware of the limitations of the malloc library you are using. Probably the most important thing for you (because you are using xilkernel), is that malloc is not thread safe. That implies that you should not be calling malloc directly from multiple threads. Either call malloc from a single thread, or protect all calls to malloc with a semaphore. The simplest way to do it would be to write a wrapper function around malloc that protects it with a semaphore, and only call this wrapper function rather than malloc directly.
