I have been connecting them with alligator clips at the moment. Don't want to use any of the conductive thread until I have it all working.
Not sure what bouncing back letters means....
I have the coordinator xbee connected to a PC running x-ctu and the end device xbee set up on a lilypad breakout board with power and ground connected to the lilypad power supply and the tx/rx pins shorted. From this setup, when I type something the in x-ctu terminal, the same thing comes back. I have the post on my current design blog (http://sdat8455.livejournal.com/) if it will make it clearer. Images are provided too.
Could there be anything else that I'm overlooking?