errr...thats a tough one
perhaps its because the XML isnt designed to be sharing space with other mods, but really thats all I can think of. I run a similar XML but it runs all known Brawl Mods (not at once, but I can select one and it runs that specific mod) and it runs it with no error.
Or maybe your XML is confused because you have 2 folders of the same name and its loading the files on both folders
I tried something different: I put the projectm.xml in my riivolution folder along with BionicSonic's smashmods.xml (Brawl Mod Launcher v2.5).
When I get on Riivolution, I have the ability to choose between two XMLs: Brawl Mod Launcher v2.5 and Project:M Demo which has the same options as Brawl Mod Launcher v2.5 except it doesn't have a PSA option and the codeset option is replaced with Project:M.
So, I tried loading Project:M as a separate XML this time instead of incorporating its contents into my smashmods.xml, but nothing changed from before -- my Brawl Minus textures and music were still being loaded along with the P:M hacks. I went back, tried disabling everything on Brawl Mod Launcher v2.5 and then scrolled over to the Project:M one and launched it, still nothing changed.
Also, it can't be confused because both mods have the exact same folder names, but P:M chooses only to work the CSS, SSS, stages, movesets and results screen.
Here's how I have everything set up:
For Brawl Minus, which I run via BionicSonic's Mod Launcher v2.5 XML configured with the Gecko layout, I have 'codes', 'pfmenu2', 'private', 'riivolution' and 'pf' on my SD card root.
In 'pf' I have 'projectm' 'fighter', 'stage', 'module', 'sound', 'info', 'info2' and 'system'.
In 'projectm' I have the same folders listed above minus module.
I'm thinking maybe it loads my Brawl Minus textures because P:M didn't come with any, so it just looks for the next thing on my SD card? But then if that were true, my music hacks would work because P:M came with a few songs, but they do not play and instead my music does.
Also, anyone know why my game froze when I tried to play the Mushroomy Kingdom: Underground track in My Music? The music played for a split second then BEEEEEEEE---. Everything else in My Music played fine.