fxmech:
Does anyone know the limitations when using the servo library in conjunction with serial communication???
Nothing I know of. You mention that the xbee is on the UART so I'm presuming using D0 & D1 on the Arduino. There are XBee shields which use other digital pins for IO which could clash with the pins you're using for the servos, but I don't expect that would give you the issue you're experiencing.
fxmech:
the data is processed and then mapped to values between 1000 and 2000 to use in the servo library commands...
The servo write() only accepts values between 0 and 180 so I don't know what it would do if fed values so high..?
Geoff