Sounds like you either have a bad XM module or there is a loose connection. The pins on the connector can sometimes get pushed back in the holder.
Having the GPS in the cradle has nothing to do with the performance of any of the stereo components output. If there is a Roadtech 665 in the cradle with the XM antenna that comes with the 665 hooked up, the ONLY way to hear the XM output from the 665 is through the AUX input on the HK radio with a stereo patch cable hooked up. If the system is saying XM is available (it gives you the choice of selection when scrolling through the mode selections), it should play.
Keep in mind that if/when you buy either a 660 or 665 replacement you MUST buy the HD version and NOT the Garmin version IF you want the NIM to send the audio output directions through the stereo speakers or to your headset(s). There should have been two HD Boom Headsets included with the bike as well, unless the guy kept those too. Personally, I think it was pretty chitty of the guy to keep the Ipod AND the GPS since the bike comes with those things (the GPS would normally be the 660). I just sold my bike and gave the buyer ALL things that came with the bike, plus all the take off parts that I had changed to better stuff.
In any event, I'd take it to the dealer unless you find a loose connection. Let them deal with it.