Click and Clack
It's hard to see on the breadboard, but you need a voltage divider circuit to knock the 5V/TTL serial output of the Arduino down to the 3.3v needed to drive the XBee. The resistors just below the green LED on the breadboard are the voltage divider. Notice the common ground from the XBee on the right side female header (I soldered the header on so it was easier to plug to.)
