I wouldn't upgrade your body until you're ready to go full frame and have a solid set of quality glass. The newer Rebels give you some gee-whiz features, but the IQ isn't much better.
Normally I'd agree with you, but not in this case.
I upgraded from an XS to the T4i. You are right, the image quality isn't THAT much better, but in the high ISO range it at least gives you the option (the XS tops out at 1600, and is pretty bad at 1600, the T4i usefullly (it can go higher but I wouldn't bother) tops out at 6400, and is better at 1600 then the XS).
Aside from that, the newer rebels have FAR better focusing, both in sensitivity and accuracy.
Higher FPS is ALWAYS helpful, so that can be a big one depending on what you shoot.
It doesn't sound like something important, but the far higher resolution and bigger screen on the newer rebels is WAY better then the XS (which had a very good screen for it's time, try going to an XT to see how bad screens were).
The sensor is higher resolution, which means cropping is more a possibility on those shots where you just couldn't reach.
My recommendation? Pick up a used newer Rebel body, T2i/T3i/T4i would be a very good choice. The difference in usability and keeper rate over the XS will blow you away.
As for lens recommendations, that depends on your shooting. I've got the 18-135mm IS STM and although it's far from PRO, it's a surprisingly good lens on the "kit lens" side of things. Benefit is it has great reach for one lens.
As for the XS, I'd suggest keeping it as a second body. I've found it very good to have 2 bodies even as an amateur. I use the XS for timelapses and other cases where I don't need what the T4i gives me and don't want to up the shutter count on it. There have been a few times where I've used the T4i to capture video and the XS to capture timed stills of the same event, very useful!