Check this page.
http://www.xcrysden.org/doc/density.html
If that menu item is active (and if your XSF file is bigger than several KB), it means that you have density data in your file.

I remember I was confused with XCrysDen as well by the view of the checkboxes (they are read and blue and green and it's hard to understand when they are checked).

Also, be sure to be in 'Lighing on' mode.

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