Not much reason to be confused.
If you are already using XHTML happily and it works for your needs, keep doing it. It certainly isn’t harmful!
The argument that some of us are make against XHTML is that due to lack of browser support there are not really many real-world benefits to XHTML over HTML, and rather a lot of drawbacks. That said XHTML has many useful features when used correctly.
Use a strict doctype of some description, write good, clean code and you should be fine whatever.
As long as you don’t need to work with many Ajax libraries like Mootools, HTML doctypes are just fine indeed.
What problems are there with these libraries & HTML?
I have seen a few places in the MooTools docs saying XHTML required, but never had a problem with HTML. A quick search of the MooTools forums just seems to return the answer that as long as the code is clean and you use a strict doctype you should be fine.
Can’t say for jQuery, Scriptaculous etc. as I haven’t used them much.