I ended up getting two xbee pro S2B since the store ran out of series1.
Series 1 models are point to point. Series 2 are for mesh networks. Getting 2 radios to talk to each other is much simpler with the Series 1 models. If possible, I'd take the Series 2 back and get the Series 1 models, instead.
I run into a lot of confusion of how to connect this up to an arduino. Do I need the USB xbee adaptor or can i directly connect the xbee to the arduino?
The XBee adapter comes with a voltage regulator so that it can be connected to the 5V supply, which can supply the necessary current. Series 2 models, especially the Pro versions draw a lot of current. The 3.3V on the Arduino is not capable of supplying the necessary current.
where would I wire the xbee i/o to on the arduino?
If you get the shield or adapter, connect 5V, Gnd, and any two digital pins, and use NewSoftSerial (0023 or earlier) or SoftwareSerial (1.0 or later) to talk to those pins. Do not use SoftwareSerial on 0023 or earlier. It is obsolete.