My xj was making this sort of hissing noise when it was idling or being driven
( I would notice it most when I drove by a fence or building ) from the drivers side. However, now the hissing is kind of doing a pulsating thing and changes the speed that it pulses depending on how fast i'm going. The pulsing turned up a couple days ago along with a huge decrease in MPG's. Any ideas?

 

Exhaust leak? See if the header is cracked.

 

Make sure you hose to your air filter is on correctly mine was half off and sucking up against the box and it wouldn't breath correctly

 

Have you popped the hood and listened around yet? Would be a very good place to start if not.

 

I've done that. Doesn't seem to be it. I think it's coming from more towards the rear. I'll listen again tomorrow.

 

Like turbo xj said look for cracks in the exhaust system. It can make a hissing noise. Mine was cracked on the back passenger side and would make a hiss.

 

Could what is causing this sound be linked to my MPG loss?

 

If it was the manifold cracked it will reduce your mpg, I am not sure by how much. I can hear the exhaust leaking from mine and I get about 14mpg on a good day. hoping the manifold and o2 sensor replacement I am planning soon will improve that.