Have you turned on PHP Debug in your XOOPS Prefs to see, what, if any errors are returned when you try to use the modules.
Your backend.php feed is working as expected. The feed is 100% valid. This is a default install 2.0.1.0. Only the theme has changed.
xhld sample
In xhld you will notice immediately if you have a feed error. A feed producing an error will be outlined in a reddish hue and it will not pull the feed into your site. From the samples above no errors have been generated.
xhld selects the correct feed format based on the incoming rss. So there is nothing there you have to do to make it work other than install module, plug in a feed and then read your feed.
Have you done anything else to the xhld module to cause this concern besides changing permissions through your FTP client.
Have you tried completely removing the module, uninstall (remove database entries), then overwrite the xhld directory with a new copy and re-install.
You said you tried the XOOPS Headlines module (yes/no) Xhld and XOOPS Headlines can't or won't co-exist from what I have read. Is the Headlines module still installed in XOOPS have you completely removed it or just shut it off?
What name did you give the xhld module besides xhld0 ... anything? If Yes did you move back to default directory name.
Have you tried any other php rss feed programs on this ISP of yours to see if those work as expected. There are numerous ones available.
I'm just spouting off some things if it helps then it's good ... no.
Regards,
rocket98