I installed XOOPS 2.0.16 thru fantastico.
and have problems with intsalling themes

1.
Under theme it only shows 'default' although the XOOPS package itself come with 2 or 3 other themes. so naturally, any theme uploaded thru ftp is not recognized.

2.
theme installation. it says: "Must be a tar.gz/.tar file with a valid XOOPS template set structure". Many XOOPS downloads are zip files?

so what's going on?

elo elo, templates != themes, take a look at:
https://xoops.org/modules/smartfaq/faq.php?faqid=88

The themes that you can download from the Xoops.org themes library are often zipped. Sometimes the zip may contain several folders (extras etc.) but there is always one folder named after the theme which should contain 'theme.html'.

FTP this folder into your XOOPS 'themes' folder, then open XOOPS admin/system/preferences/general settings and the new theme should now be selectable as the 'default' theme.

In the same admin screen you can also select (ctrl-click) the new theme name in the list of 'selectable themes' to highlight it. Having done so you can then add the 'themes' block to your site to allow users a choice of theme.

Templates (where you can upload tar.gz files) control the appearance of specific module pages over and above the global style set by the theme.

HTH