Xanax XR can cause sedation, which is one of the main adverse side effects of the drug. Stomach upset and diarrhea is another.
If your doctor reduced the amount you are taking, you should be feeling better. It is odd that you would feel worse rather than better if you are reducing the medication. In most cases, the side effects of the medication lessen as they medicine is reduced. The only way you could feel worse is if you began to have an adverse reaction to your medication. But you would notice that because you would be having very strong symptoms that you could not ignore.
I am wondering if the reduction of the medication has allowed some of your other symptoms to surge. If the medication is less potent in your system, you could be experiencing your symptoms to a greater extent. Do you feel you could be depressed? That would account for the feeling of sedation. Anxiety can also make you feel depressed and cause nausea. Also, the amount of stress you have been under and the medical issues can all contribute to how you feel.
Feeling sedated can make you feel out of control and therefore more anxious. That is normal. People who have anxiety fear feeling out of control more than anything else. It is the nature of the condition and how it manifests itself. And since the anxiety can cause nausea, that would explain both symptoms.
Is there anything else your doctor could prescribe to you while you wean off the Xanax? Have you tried Ativan? That can be prescribed as a PRN, take as you need to medication. It is commonly used to help patients feel they have more control over their anxiety by allowing them to take the medicine as they feel they need it. Contact your doctor to see if he would prescribe it for you or if he has any other medications he recommends to help you through this time.
Also, try other methods of helping yourself that are not medication related. Relaxation techniques, read some of the books I recommended for you in the first few answers, talk out of you feel with those you trust, and things such as hot tea and a bubble bath. It may sound simple, but sometimes those are the best things to make you feel better.
Let me know what you think and if I can help with any additional information.