The official D2X-XL website
has a lot of detailed information on properly configuration, for example directory structure:
config: put all config files here (*.cfg, *.ini)
data: put all game data here (*.pig, descent.hog & .msn, descent2.hog & .mn2, *.256, etc.)
demos: demo files will be saved in this folder (*.dem)
missions: put all game data here (*.hog, *.msn, *.mn2)
models: put all hires model data here (*.oof, *.tga)
movies: put all movie files here (*.mvl)
profiles: put all player profiles here (*.plr)
savegames: put all save games here (*.sg?)
screenshots: screenshots will be saved here if this folder is present (*.tga)
Not to rant here, but it seems like a lot of the "problems" or bugs people have with D2X-XL stem from not reading the installation/gameplay instructions correctly/at all.
MP-Ryan: More details please? (i.e. version number, what OS you are running it on, if you have the original D2 HOG files, etc.. the works.)
jr2: Strangely enough I have gotten 3rd party levels to work through the "Single Player Game" option. Weird.