XDS is the electronic locking diff and these settings adjust how severe the intervention is analogous to how much slip is allowed on a normal LSD... Earlier intervention should mean better traction out of slow corners but could result in more power understeer...
I don't think that the GTD/GTI lacks grip - at least not laterally - and is reasonably well balanced, I've even noticed that the rear can be provoked into playfulness, which given Tiff's review, was slightly unexpected... I'd like to try the XDS set to strong to see if it helps...
There are traction limitations but you are always going to get those with relatively powerful/torquey front wheel drive cars... I've had a few that were much worse ('90 Saab 900 T16S, Fiat Coupe 20v Turbo, spring to mind)