I've seen XBee circuits connected directly to the 5V logic lines and some that have the 5V to 3.3V level shifting. Will it work connecting the XBee's pins directly to the Arduino or is that just asking for a fried XBee?
It's asking for trouble. You may damage the Xbee, the Arduino, or both. Or you may "get away with it" for a while but lower the lifetime of both parts and one day they just magically stop working.
The XBee is a 3.3V part and should not have inputs exceeding 3.3V. We have a suggested interface circuit here that shows how to interface to an XBee. The Gator board has built-in 510ohm resistors so for a board without those resistors, you must add them in series with your Arduino pins.