It's well known that a character can reach 100% XP penalties due to how poorly tested the multiclass rules are. Going Non-Favored Class A 2 / Non Favored Class B 1 / Non Favored Class C 1 / Non Favored Class D 1 / Non Favored Class E 1 / Non Favored Class F 1 and then going Non-favored Class A 3 suddenly means all XP received goes to 0.
Since penalties all stack this would also nullify any XP losses. Which oddly, isn't abusable since the XP nullification happens "from the moment the character adds a class" that puts you into the penalty. So even if you would have extra XP left over, it goes to zero. That means no XP available to spend (for free) on magic items. Since level drain also sets the level first before messing with XP, the temporary XP nullification is not helpful (since the XP change happens after the lost level).
If the above example took a 6th dip before gaining 3rd level in the highest level class, the XP penalty would be negative. The XP gain to get you there would have to exactly put you at 0 hp over the amount needed or it would create a yo-yo effect of instantly de-leveling because the gained XP would become negative XP. Presumably this was a built-in fix. If a a PC managed this situation, would you allow XP losses to become gains? There are very few ways to spend XP when you have 0 more than you needed for your last class level....
"Your multiclass character suffers a -20% penalty to xp for each class that is not within on level of his or her highest-level class."
An XP penalty is an is a penalty to xp change. Things that change XP use the XP penalty because ... its your XP penalty value. The examples mention XP awards which state no source or other restrictions. I see no reason to think other awards would get off scott free. If they did, the XP penalty would be toothless for a character who stayed at a set ECL and spent XP on other things. That would be an even great dysfunction to me.
XP costs are just negative awards. Basic math is preserved in D&D, aside from the (x2)*(x2)= x3 stuff.
Captnq is correct that the RAI is probably only concerning XP increases. He writes:
"For example, killing a monster grants you 200 xp in situation X.
However, in some games, killing a NPC is a XP penalty of say -200 xp. (why did you kill all the kobold children?)
In THAT case, and that case alone would your theoretical -20% penalty net you a whopping 40 xp."
tl;dr RAI the xp -% is for XP gains only (all costs aren't gains so voila). RAW its not specific and the text only mentions the -% affecting classes but this is rule-lawyery (if you have a -% that goes below zero, you would gain xp but only for xp changes relating to classes, ie DM negative xp awards or bloodlines).
It ALSO requires very specific dipping and build orders to not lose xp (the whole point of the build). Let's put it in the "I'll allow it only if you're a noncaster that I already have pity on" category.
