I installed XOOPS yesterday, and because XOOPS only allows .tar or .tar.gz files to upload for templates and for some reason when i download templates here they are in .zip format??

Any way, so i decided to edit the default template instead. Cut a long story short i ended up with just the stylesheet in the default directoy and the template was still outputting all the HTML?? Funny, where in the hell is that template file coming from. I had tried editing the theme.php file in the defualt template directory, but nothing happened.....whats more is that the stylesheet does seem to corespond with the default template.

Can someone just give me a push in the right direction?

I'd recommend you start by reading a couple of the documents here. Specifically I'd start with the Anatomy of the Default Theme and then also look at sections 1.7 and 2.14 of the Xoops Operations Guide.

You can't edit the default template set within XOOPS. However you can clone the default set (in admin->system->templates) and you are able to edit the clones.

To see the changes however you need to first switch XOOPS to use a cloned template set (in admin->system->preferences->general) and also select 'check templates for modifications' in the same area.

Then you can edit everything to your hearts content :)