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I have been having the same problem. I am running my own server with:
*SuSE Linux 9.2
*Apache 2.0.52
*MySQL 4.1.8
*PHP 5.0.3
*XOOPS 2.0.9.2
In trying to troubleshoot the problem, I installed cpgnuke and its headline modules worked without trouble from the get-go. Rest assured I deleted cpg as soon as I confirmed that the problem I was having seemed to be XOOPS and/or module specific, and probably not a problem with my server.
I love everything else about Xoops, but this headlines thing is really bugging me. If I have made some obvious gaffe (e.g. "well, yeah. XOOPS uses XYZ and cpgnuke uses 123; everyone knows 123 sucks. Etc, etc."), please correct me.
God knows this is great stuff and so far I haven't paid anything, so I'm not bitching. Just frustrated that something so damn cool doesn't work a little bit better.