I'm going to go out on a limb here and suggest that your POD XT has a "pad" button or switch somewhere. This is for taming overly hot signals.
Actually I just Google Imaged POD XT and indeed there appears to be a switch giving you the option of NORM/PAD.
By the way, I always turn the volume pot of my Telecaster down a touch when going into an amp sim. I don't know why but it seems to give a better sound.
EDIT: actually perhaps I was looking at photos of some other Line 6 product. I just had a look around the back of the XT and there doesn't appear to be a pad switch. Or maybe you can see one?