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Ok - Part of my problem was I edited the file called system_block_login.html in the xoops/modules/system/templates/blocks/ section AND I edited the same file in the /xoops/themes/phpkaox/modules/system/ section. I still can't figure out which one actually impacted me, but - I'm back in business.
I currently have check for changes to templates turned off and I have the allow new registration turned off. My version number is XOOPS 2.0.15.
Unless I hear otherwise, I'm now thinking the easiest way would be just to edit the message that says "Sorry, we are currently closed for new user registration" - my message would be something like Registration to this portal is reserved for blah, blah blah.. please click here to request a username and password (an email link) if you fit this criteria.
What are your thoughts?