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Assuming there's no module, shouldn't you be able to add it as a virtual domain in apache? You'd route the request for
http://www.blahblah.com/user1 to
http://www.myxoopssite.com/modules/popnupblog/user1.php where the php page is the beginning of user1's blog. In such a case you'd have to make sure that anonymous users have access to the module page you're referring to.
-EDIT-
The more I think about it, the more I think this is the only way to do it. It's your web server that would be "listening" for something like this, right? Otherwise your XOOPS site will be looking for a folder called user1 which would need its own index.php and God knows what else. I'd sure like to be wrong, here. Somebody correct me.
I suppose somebody could create a module that added a folder for users who created sub-sites, then copied needed files into each folder as they were created. It sounds pretty cool, actually. I need to learn PHP.