First, the DNN News module is not going to support 'building' a newsfeed.  It is a newsreader, of sorts, not a news creator.  You could use a DNN Announcements module to let users build news items, just make sure that you enable syndication, and the items added with the Announcements module would be included in a DNN syndication feed.

Also, I have used xml files to be used with the DNN News module, but xml does not really have a method of locking records, so it doesn't work well for using as a multi-user datastore.  You can build an xml, and use it as a news source, but I would not recommend that type of usage for a web site.  There are too many security issues to effectively use it - meaning the overhead for allowing multi-users to do basic Add-Change-Delete functions will not give you very good results, which is probably why you can't find examples of that type of usage. 

The default format for the DNN News module is RSSv0.91, a very basic format.  RSS syndication has evolved since DNN first began, but the current module really only supports basic newsfeeds by default.  You need to know about RSS, XSL, and XML to use more sophisticated implementations. 

So, my advice is to try to use the News module to present the news built with the Announcements module.  Then, if you need something more, take a look at some other modules that support syndication to see if they give you better results.

Cheers