You can also try setting exposure compensation a bit high or a bit low. It depends on your camera, but generally, if you overexpose your picture a bit, you can dial it down later and touch it up in post processing. If you underexpose, or get a photo that is too dark, when you lighten it later you'll end up highlighting the noise, too. This is the case with my camera, but try it with yours to see what works best. Don't forget to shoot in RAW, since there's much more leeway in terms of noise reduction and exposure compensation when you post-process a RAW file than a JPEG.
The 50/1.4 is a bit soft wide open, but the shots are still usable and I'd definitely open wide if I needed to; I have the same lens, and I have done f/1.4 on occasion. I would have shot with this lens for most of the event, had I done the shoot, since it opens up widest, and in low light where the flash isn't happening, you need all the light you can get. 50mm (80mm equiv.) is also about the longest I'd try to shoot in close quarters, too. As you learned, 85mm is too narrow, and f/2.8 is too far stopped down for that environment, even though the 28mm (45mm equiv.) focal length is also good for the shoot. All things equal, though, the 80mm equiv. focal length lets you get shots of people without shoving your camera in their faces, and that's always good.
If I did the shoot, I'd keep the 50/1.4 on the whole time, put the ISO as high as feasible (1600 should be okay even on a Rebel XS, especially if you have good noise reduction software like Noiseware). I'd overexpose a stop or two with the intention of dialing it back down in software.
As a side note, I've seen people gloss over noise and other badly exposed images by running photographs through Topaz. Topaz-processed pictures can look ridiculously fake, but I've seen some creative things done with it that save pictures from being throwaways. I don't have personal experience with it, but am considering purchasing.
EDIT: If you intend to do more indoor photography, I'd invest in a good external flash. I have a Canon 430EXII. Not too expensive, but it's powerful and allows me to use it as a remote flash off-camera (the XS won't allow you to do this without a dedicated transmitter for a couple hundred $$$). The 430EXII also has a swivel head, so I can bounce the flash off of the ceiling or point it left or right to bounce off of a wall. I'd definitely invest in one if you have the money and feel like you may upgrade your photo kit, but the 270EX is less expensive, has less frills, but is still a very capable flash unit.
Also, if you post some pics, maybe we could discuss in more specific detail what's going on.
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