If you provide object of the custom type then XStream is not involved at all. XStream (or any data type) will be involed only if the parameter is of type string as it will try to build object representation based on string.
take a look at this example process definition it uses custom class as process variable for this you can either execute it with object of type string (an xml representation of it) or give it directly the instance of that type. Here is a corresponding test case that uses string/xml representation but I just tired with instance of person class and it works as expected.
Can you see any difference with your process or code used to complete work item?