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@dave,
you can use php_flags in .htaccess when PHP is running as an apache module instead of in CGI mode.
but from the error given above it does look like PHP is running in CGI mode, in which case you need to create a php.ini file and place it in every folder that has an executable script.
by that i mean you have to place a php.ini file in XOOPS root folder, then in each modules root folder and also each modules admin folder. php.ini files do not affect folders below them like htaccess does.
in your php.ini file you need to add:
register_globals = 0
allow_url_fopen = 0
session.use_only_cookies = 1
session.use_only_cookies is optional but may give you a tiny bit more protection aswell..