Thanks.
I'm pretty sure it is the LED as they are lit even on sleep modes to indicate that they are still powered. Do you have a way to operate Xbee with an Arduino which is at 5V? I'm thinking of using resistors to make a level converter, will it work?
I'll refer to the product manual on the pin hibernate. Thanks again. Let me know if you think the resistors or other methods will work. I hope to buy as little as possible and resistors are available to me quite readily. =)