XBee (S2) Voltage Divider to Read Input 12v Alarm Output Pins
Question 1: The 1.2V is the maximal value for inputs that must be sampled (ADC). If you have configured the GPIO correctly for digital input, the input value must be bigger than 0.8*Vcc:


Your 1.2V input is lower than 0.8*VCC, if you use any VCC voltage between 3.0V-3.4V. You must change the voltage divider configuration to make it work properly. Example: The resistor divider to 3.0V output ->  R1/R2=3, try to use not too high resistors values. (R2 between input and ground, R1 between 12V and input)

Question 2: "my second question is what if I want to power XBee from the output of that voltage divider.." if the output of your voltage divider is 1.2V you cannot power the XBEE, as the datasheet shows, the device requires voltage supply between 3.0V - 3.4V. Take into account that the maximal recommended input voltage for the pins is 3.3V ( ..."Regardless of which XBee you chose, you must not exceed 3.3V on any pin or you will damage the radio module."..). Therefore be sure that your 12Voltage are regulated to prevent damages.

I should say, I don’t understand the reason why do you want to power the XBEE from the voltage divider, the voltage divider is to adjust the signal to the digital input of the XBEE, if you use this to power the XBEE, when the signal is low it means the XBEE is turned off.