I'm curious to know the source of the apparent xenophobia in Tsolyani society. It does not seem to be racially based, theological, or political/national. It does resemble, to an extent, the situation in Japanese and Chinese societies before they were "opened,", but in the case of Japanese society, foreigners were not allowed outside of their enclaves. I have a fairly extensive collection of Tekumel material, and have tried to find something on the subject in the Blue Room archive, but so far, no luck.

Any explanation for this xenophobia?

I think it reflects Barker's ideas about pre-modern Asian states, particularly China, and the influence of pulp fiction tropes. To me the basis seems cultural and ethnic, and to some degree racial. I've never seen any written discussion of it though.

The odd thing is that this "xenophobia" was much more downplayed in the original EPT than it is handled later. In OEPT the warning Prof. Barker gave was that "Players who attempt to enter Jakalla alone at this stage (just off the boat) run the risk of making errors in speaking Tsolyani or in the intricate rules of imperial etiquette. A 6-sided die is rolled each turn and a roll of 6 indicates that some such faux pas has been committed. Further reactions of the Tsolyani are then determined by the Nonplayer Character Reaction Table and subsequent reactions can range from derision and laughter to a quick trip to the impalement stake." This table only gives a 10% chance of a hostile reaction involving a violent response.

He goes on to say that when a player reaches level 3 they may travel freely within the Empire, and when they reach level 6 Imperial citizenship is granted. You'd hardly come away from this description with the impression that the "xenophobia" is as severe as described on the Tekumel Yahoo Group or other places. The second issue is that since Gardasiyal (the rules I use) are not level based so this is more arbitrary than under OEPT (actually since the PC are actually created as Tsolyani, the off the boat thing no longer applies anyway).

I get the impression that the "xenophobia" is more due to culture and custom rather than race, ethnicity, or other factors. Prof. Barker lists it as I quoted above as language or etiquette. Since these go away in OEPT as one gains levels (experience). Based solely on OEPT, one would hardly come away with the impression that the prejudice against foreigners is based on ignorance of language/custom, not some form of xenophobia, and hence, can be overcome.

I think this is one of those things where GMs have some leeway to make choices and still be "close to canon." The Tekumel Sourcebook talks a bit more about xenophobia, particularly with respect to the Foreigner's Quarter (section 1.422), Clan 1.550, Social Class (1.720) and Slavery (1.721). There are a bunch of things in OEPT that Barker either changed his mind about, or had compromised on in order to be more game-friendly (e.g. good and evil, and spell names).