Actually, upon further testing, the audio coming out of the phone when the internal decoder is off sounds terrible. AAC+ streams used to start out sounding 'hollow' and really bad, and after a second or so they would suddenly jump to the usual quality. With the phone's decoder, it sounds as if it's stuck in that first phase, sounding awful.

When I switched back to internal decoder, the sound was excellent as it should be. Not sure what the issue is, it's also frustrating because apparently even on 4G, it's not able to maintain a 40kbps stream for more than 15 seconds without rebuffering. Not sure if it's the network being horrible or something else...

FYI, I just got a new HTC Sensation, and while it is reporting 2.3.3 as Android version, with 2.2.1 of XiiaLive, and the internal decoder shut off, it streams AAC+. Not sure if they fixed the audio framework in this version of android that was distributed with the phone, but I tried a couple streams and they seemed to work just fine.
Also, the screen resolution isn't working right on this device, it has a qHD screen. XiiaLive takes up only 2/3 of it.