xterm is a terminal emulator, not a shell. Anything that produces a terminal-compatible text stream can be started as the first program.
e.g. xterm -e nano, assuming you have the nano editor installed, has no instance of a traditional shell (e.g. bash, zsh) running between the xterm and the editor, but the editor still works.
You could argue that makes the editor itself a shell of sorts, because it's interactive and you can do things with it, but it's still not the xterm that inherits that title.
IDK if federations doesn't work, I already wrote to another response that I use Bash.
Since the Amiga in the 80's I considered CLI windows and Shell as the same thing,because they kind of were on the Amiga, as there was only 1 shell, and a CLI window was also called Shell. But that was obviously a misunderstanding I just never got quite rid of.