I used Xan for my first play-through. He's kind of amazing, but you can't try to deploy him like a nuke. Load his first couple spell levels with Sleep and Blindness slots (both very strong in BG1), and fill the rest with as many summons as you can pack (extremely useful in BG1). He can also do decent spell damage with Melf's Acid Arrows (which cripple enemy casters due to interrupting their spells) and Skull Trap (which is basically a better but more difficult to use Fireball).

Xan is actually rather dangerous with his moonblade- he can't go toe-to-toe against anything because of his incredibly low health, but he'll execute sleeping foes with alarming efficiency (and Xan is very good at putting most mobs to sleep). He can chuck bolts in a pinch, although it's pretty rare that you'll end up in a fight that runs long enough that he has to.

If you still really miss your Fireballs and Lightnings, bear in mind that BG1 has an absurd amount of magical rods in it, and Xan can use all of them.

Finally, he is by far the most amusing character you can recruit :)

Just keep him the hell away from everything- archers will kill him in seconds (until you get end-game gear, anyway), and an alarming number of melee enemies can slay him in a single blow. But honestly every mage in the game is fragile and can't stand up to sustained combat.

Well, the only mechanical reason to use Xan is the Moonblade. With it, he has the best melee of the NPC mages, which is definitely a backhanded compliment. It gives +1 AC, making him the dodgiest mage, but since Dynaheir and Edwin get 50% more HP they're more durable anyway. It gives +50 fire resistance... this is actually kind of neat, when it's relevant. In particular, you can have Xan down a Potion of Fire Resistance to bring him up to full fire immunity, and then you get a mage that doesn't mind being caught in a Fireball. Of course, Xan needs to use scrolls or items to really take advantage of this, since he can't memorize evocation spells. And evocation spells, while not indispensable, are quite good.

Overall, I would say the only reason to field Xan is because you think he's funny. (Which I do.) But he's quite a pain early on, before his HP gets high enough to survive stray gusts of wind. Note also that while his Con isn't low enough to actually penalize his hit points, it does make him get tired more quickly. But since hearing him whine is the reason to deploy Xan anyway, that's kind of a good thing...

Note that his initial proficiency allows him to use throwing knives without penalty; you can get loads of them from the skeletons west of Beregost. But since they're thrown two per round and the stack limit is a measly 10, I'd encourage you to just give him a sling and deal with the nonproficiency penalty for a while.