my understanding was that you can run a XOS recovery with a 1.6 but that you just dont get a Xenium splash screen to confirm that the process is working.
Burn yourself a recovery disc (you may need to experiment with different disc types, ie dvd-r, rd-r, cd-rw), pull your box apart and flick the chip into recovery mode using the switch (recovery mode on the gold is when the tab is toward te top of the GOLD chip). Put the box back together and power it on, load the disc and wait and see what happens. A sucessful recovery can take up to a couple of minutes. Leave it for at least 5 minutes to see if it's going to power down by itself. If it does, take the chip out of recovery mode and boot as normal, hopefully the recovery has worked.
That said, simply activating reovery mode by mistake shouldn't have corrupted your XOS. At present, when you boot into XOS what happens if you just leave the xbox? If the box ejects the DVD-ROM tray close it with nothing in it, it should realise that theres nothing to recover from, bringing itself out of recovery mode and powering down by iteslf. If it won't power down by itself proceed with the recovery disc.
Also, did you have a recovery.bin file stored in the root of your E drive? If so, this file might be the issue. The XOS looks to the HDD first and if it cant find a recovery.bin file it goes for the DVD-ROM. If things aren't working, unplug the IDE cable from the HDD but leave the DVD-ROM connected to force it to find the DVD, might be hanging on a corrupted XOS recovery file on the HDD.