I have a good amount of whitish/yellow powdery corrosion on the bar that holds the battery in place. The corrosion has eaten through the bars black finish and it's eating away at the bar. The bar isn't touching any wires and the battery it's self has no corrosion. Is this bad or a sign that something is wrong with electrical system somewhere?

 

Pretty normal for an XJ to have a cruddy battery hold down. Wash it with baking soda and water, then paint it if you want to. This can be a build up from years ago, this is almost a 13 year old vehicle.

 

You could always make your own out of steel. Or buy an upgraded one at somewhere like here:
http://www.andysautosport.com/batter..._cherokee.html

 

Toss it and buy a new one from Auto Zone or Napa, thats what i did.