Well how about the ship(s) on LV-223 in Prometheus are where they designed the xenomorph weaponry. The black goo was the first step towards creating eggs and xenomorphs. The crashed ship in Alien on LV-426 (which looks like it orbits the same planet) is the finished product, with the black goo making perfect xenomorph forms. However, David playing with it and taking this evolutionary material and infecting Charlie with it distorts its effects, just like we see with the worms. He then combines it with his own DNA when his infected semen impregnate Shaw. Thus it has 2/3 human DNA and that distorted it when it made an abnormally large face hugger that had a human-esque mouth as well as phallic abilities. Then the xenomorph it creates has human teeth and other aspects that are warped from the cleaner xenomorph design the engineers usually develop with the material.
I think that makes sense.
The problem with that is that the supersquid had already completed the 'facehugger' part of its cycle; it was about to burst out of Shaw when she had it surgically removed. One of the biggest conundrums about this is that there seems to be a whole extra stage in the squid-alien's metamorphosis.
I think the whole question rests on what exactly is in the carbon cylinders.
(I) Is it an ooze which "weaponises" existing organisms? That's what it seems to do to Holloway, and that's what it seems to do when it turns the "worms" into the aggressive "serpents". The worms in this scenario are incidental, organisms that would be metamorphic but probably not form the killing machines that they become by exposure to the ooze.
But how come the "weaponising" ooze forms a new creature that grows in Shaw's womb?
(II) Is it early-stage genetic material? In this case the worms "hatch" from the ooze, then grow to serpents, which we assume impregnate other hosts and thus create Xenos. Shaw is impregnated with early stage material, which bonds with either her DNA or Holloway's, so the resulting spawn is octopodian rather than serpentine in nature.
But why in this case does the genetic material have a "weaponising" effect on Holloway? It's hard to see how this protoplasma or whatever can form a new creature and turn Holloway into Frankenstein's monster as a mere side effect.
I think either one or other of these must be the correct analysis, but I can't work out which.