So I'm trying to send a project file to a buddy in San Francisco so he can work on it, but the problem is he has FCP 5.0.4 and I have 5.1 and he is unable to open the project file.
Is there any way around this besides him upgrading to 5.1?
The XML should be working fine. That is most certainly the way to go when you have to go backwards in Final Cut Pro versions. One thing you can at least try on your end is after you have created the XML try and load it on your FCP system. See if there is some kind of problem in that creation process. If it works fine for you it really should be okay for him.
Also, while 5.0.4 should read XML 2 absolutely fine, just incase there's some issue there, perhaps try sending him two files. Send him XML 1 and XML 2. Perhaps 1 will work for him.