Apparently google play says it is incompatible but I see no reason for this?
Could you maybe add some more information about model number?
Have you tried to install it over Google Play in a browser or only over the device?
Please let us know what Google Play over the browser tells you the same.
What's the Android version, Kernel version and Build number? (Tap the Settings icon under Apps > "About tablet" on the left.)
Take a screenshot of that screen by simultaneously pressing the "volume down" key and the power button. Upload it to your computer via any method like Dropbox or simply by connecting your Xoom to your desktop computer via USB. (The screenshots will, naturally, be in a folder called, "Screenshots.") Post it here.
You have the same exact build, etc., as I have. There really should be no reason why you can't get PS Touch on there; I have and use it with no problems. (However, that was before I upgraded to Ice Cream Sandwich but it runs just fine now.)
As Ignacio mentioned, did you try installing PS Touch through Google Play (formerly Android Market) itself?
This sounds like a Google Play/Android issue.
Do you have several id's connected to the device?
Is this the only application that you cannot install?
I've encountered a similar problem and if I remember it correctly a hardware reset made it (with a backup before).
I'd like to know if this was ever resolved by the OP. I have the same problem on a Honeycomb Galaxy Tab 10.1", however I strongly believe this is a Google issue and not a technical issue. Basically, they don't seem to support any purchasing of tablet apps for Puerto Rico. I can buy apps for my phones just fine, but nothing for my tablet.