It's done via proxy, node.js, and websockets =) No iFraming. Since we're proxying, we can dynamically hijack the links and insert JS.
Any chance you'd consider open-sourcing?
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Edit: I should add that I'm using libxmljs in production (http://newsbasis.com/news) as an rss parser (streaming sax-push-parser) and it works quite well for that sort of xml.