I found that the way to move the icon within the button is
xTaskbarIconX and/or xTaskbarIconY.

I am sure you have all seen the settings for taskbar3 in Austerity. I was able to translate it relatively easily to xtaskbar2, but a couple of things are not working quite right. Here are my translated settings:

xTaskbarPaintingMode ".image"
xTaskbarButtonPaintingMode ".image"
TaskBarX $StatsX+StatsWidth$
TaskBarY $BarY$
TaskBarWidth $ResolutionX-TaskBarX-SystrayWidth-TimeWidth-55$
TaskBarHeight 48
xTaskbarX $TaskBarX$
xTaskbarY $TaskBarY$
xTaskbarWidth $TaskBarWidth$
xTaskbarHeight $TaskBarHeight$
IF NOT MaximizeOverBar AND BarOnTop
xTaskbarAlwaysOnTop False;True
ENDIF
xTaskBarUpdateInterval 100
xTaskbarButtonDirection ".right"
xTaskBarShowPressedState False
IF TaskButtonsMode = 2 OR TaskButtonsMode = 3
xTaskBarLines 1
ELSE
xTaskBarLines 2
ENDIF
IF TaskButtonsMode = 3
xTaskBarButtonMaxWidth 46
xTaskbarButtonMaxCount $TaskBarWidth/xTaskBarButtonMaxWidth$
ELSE
xTaskBarButtonMaxWidth $TaskBarWidth/2$
ENDIF
IF StatsOn AND NOT WinNT4 AND NOT Win95
IF TaskButtonsMode = 2 OR TaskButtonsMode = 3
xTaskBarBorders 6 4 0 0
ELSE
xTaskBarBorders 6 4 2 2
ENDIF
ELSE
IF TaskButtonsMode = 2 OR TaskButtonsMode = 3
xTaskBarBorders 0 4 0 0
ELSE
xTaskBarBorders 0 4 2 2
ENDIF
ENDIF
xTaskBarButtonBorders 0 0 0 0
IF TaskButtonsMode = 2
xTaskBarFontLeftBorder 24
xTaskBarFontRightBorder 6
xTaskBarFontTopBorder 0
xTaskBarFontBottomBorder 0
ELSE
xTaskBarFontLeftBorder 22
xTaskBarFontRightBorder 6
xTaskBarFontTopBorder 0
xTaskBarFontBottomBorder 0
ENDIF
xTaskbarButtonXSpacing 0
xTaskbarButtonYSpacing 0
xTaskbarShowIcon True
IF TaskButtonsMode = 2
xTaskBarIconX 4
xTaskBarIconY 14
ELSEIF TaskButtonsMode = 3
xTaskBarIconX 6
xTaskBarIconY 6
ELSE
xTaskBarIconX 2
xTaskBarIconY 3
ENDIF
IF TaskButtonsMode = 3
xTaskBarIconSize 32
ELSE
xTaskBarIconSize 16
ENDIF
xTaskbarImage taskbar.png
IF TaskButtonsMode = 2 OR TaskButtonsMode = 3
xTaskbarNormalButtonImage taskbarlarge_normal.bmp
xTaskbarNormalButtonImageLeftEdge 2
xTaskbarNormalButtonImageRightEdge 4
xTaskbarNormalButtonImageMode "stretch"
xTaskbarActiveButtonImage taskbarlarge_Active.bmp
xTaskbarActiveButtonImageLeftEdge 2
xTaskbarActiveButtonImageRightEdge 4
xTaskbarActiveButtonImageMode "stretch"
xTaskbarMinimizedButtonImage taskbarlarge_normal.bmp
xTaskbarMinimizedButtonImageLeftEdge 2
xTaskbarMinimizedButtonImageRightEdge 4
xTaskbarMinimizedButtonImageMode "stretch"
xTaskbarFlashingButtonImage taskbarlarge_flash.bmp
xTaskbarFlashingButtonImageLeftEdge 2
xTaskbarFlashingButtonImageRightEdge 4
xTaskbarFlashingButtonImageMode "stretch"
ELSE
xTaskbarNormalButtonImage taskbar_normal.bmp
xTaskbarNormalButtonImageLeftEdge 2
xTaskbarNormalButtonImageRightEdge 4
xTaskbarNormalButtonImageMode "stretch"
xTaskbarActiveButtonImage taskbar_Active.bmp
xTaskbarActiveButtonImageLeftEdge 2
xTaskbarActiveButtonImageRightEdge 4
xTaskbarActiveButtonImageMode "stretch"
xTaskbarMinimizedButtonImage taskbar_normal.bmp
xTaskbarMinimizedButtonImageLeftEdge 2
xTaskbarMinimizedButtonImageRightEdge 4
xTaskbarMinimizedButtonImageMode "stretch"
xTaskbarFlashingButtonImage taskbar_flash.bmp
xTaskbarFlashingButtonImageLeftEdge 2
xTaskbarFlashingButtonImageRightEdge 4
xTaskbarFlashingButtonImageMode "stretch"
ENDIF
IF TaskButtonsMode = 3
xTaskbarShowText False
ELSE
xTaskbarShowText True
ENDIF
xTaskbarFont "$TaskBarFont$"
xTaskbarFontHeight 13
xTaskbarNormalFontColor "$TaskNormalColour$"
xTaskbarActiveFontColor "$TaskActiveColour$"
xTaskbarMinimizedFontColor "$TaskMinColour$"
xTaskbarFlashingFontColor "$TaskbarFlashColour$"
xTaskbarFontAlign "left"
xTaskbarFontVertAlign "center"


I had to add a section to reduce the width by 55 to keep it from overwriting the systray. I am not sure why, maybe just because my laptop is letterbox and it is using the wrong numbers for the resolution... The other thing was that, in the original, it would show 1 task, then 2 tasks, then on task number 3 it would go to 2 lines, but now it shows 6 tasks on the first line before it goes to the second line. I am not sure how it works, I do not even have a max count number or anything.