rdbuck, it depends on which unit you buy. Some require a modulator, other's do not. Some can go either way. The Delphi SkiFi XM can go either way. I've chosen to use mine with the Aux audio input from the bike. Others use Delphi's FM modulator. Using the Aux Audio input make's it necessary to install a ground loop isolator between the audio output of the unit, and the input plug on the bike if you want to listen to it through your headsets. Through the speakers you don't need this as bad. The FM modulator eleminates this.
The modulator is not really an "option" you would need to buy to make the XM work. As stated above, it depends on which model you chose. Some models use the modulator (it is included as in integral part of the kit), others are designed to use cassette adapters (also included in their kits), and some will do both. Any unit designed for a cassette adapter or which has a line out plug (most do) will allow you to hook up through the wing's AUX connector. Those that come with the modulator, you would attach to the wing's FM antenna and listen to the XM on a specific FM frequency. It comes down to how you want to integrate the XM into the bike. I prefer to use the AUX input. If you chose this route, you will need the ground loop isolator (Electrical Connection sells a nice one or if you don't mind doing your own splicing, radio shack has one as well). Whichever one you use, you will need an antenna (if it doesn't come with one) and a 12V power source (cig lighter plug) on the bike. If you go the AUX route, you will need to make sure the 1/8" stereo plug wire is long enough to get from the unit to the AUX input plug (the ground loop isolator will add some length) and you may need to buy an extension. That's really all you will need to make it work.
I did the Delphi SkyFi with ground loop isolator and works wonderful after the antenna swap out. Never ever had a problem with the install through the Aux. I kept having fade out while going down the highway. Bought a very expensive Terk antenna and that ended the problem. The one I bought was for a fiberglass motorhome or a over the road truck. I really am surprised that I am the only one that could not make the mouse type antenna work. I did conceal my antenna on the bike as I did not want it visible.
Art - some of us have tried mounting the antenna in the trunk and above the upper liner, and while that does work "fairly" decently, it also produces a frequent break in signal. I grew tired of this signal break and mounted my antenna above the left rear speaker where it's color pretty much matches the base so it looks very normal. For one up driving it works extremely well, but when you have two up and the passenger wants to rest their arms over the rear speaker area you get the same occassional break in signal. I've considered mounting mine up front on dash platform I built for my SPIII and Valentine One, but placed out of view in front of the GPS.
If you have a chance, can you post a photo of your antenna setup?
I think it would be best to look at the different radios available. Think about how you would mount the main unit and what features you're looking for. Whether you use the FM modulator or the Aux input really doesn't make much difference. I started off with the SkiFi using the Aux input and a ground loop isolator and it worked fine. Since then I switched to the XM Commander using an FM modulator and it works fine.
With the commander, I believe you get a much cleaner installation with the small control head, and you don't have to remove it every time you want to leave the bike unattended in a parking lot.
Notes on the commander, the volume is only set at leve 5 of 8. Pick menue and volume level, then raise. Also states not to leave the control head in direct sunlight, and not to get wet. Guess the direct sun can ruin the lcd screen.