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.