I noticed that the XM16E1 had this roll pin installed at the rear that isn't present on the M16 / M16A1.

The H&R repro lowers have it as well.

What is it for? I'm working on making an XM16 clone from an 80% so pondering if it is necessary.

On the originals, it locks in the buffer tube.

On the H&Rs it's there for looks.

On Cav Arms Mk2s, GWACS, KP-15, it retains the buffer retaining pin.

That makes sense.

So I assume that the buffer tube would be installed, drilled through the hole then pinned at the factory?

Yes. During late XM16E1 production it was realized it wasnt necessary and was eliminated.

The Colt 607 / XM5857 had two. One to stake the buffer tube in place and one to stake the lower stock adjusting rod. H&R has the buffer tube roll pin hole drilled but not the stock rod hole in their 607 lowers too.
https://palmettostatearmory.com/harrington-richardson-xm607-carbine-lower-receiver-gray.html

I have a couple 607s but have not installed the roll pins yet. I do not remember my hole actually in the threads. I thought H&R drilled it a tad low to miss them. (Just for looks) Maybe they are in the threads? Anyway, I seen a discussion on Reddit where a few people's roll pins were seizing up halfway or not going all the way through. They were cutting short pins and installing from each side. Some places selling the short pins. Harbor Freight has 315 piece roll pin sets for like $7. I have had to use several on my builds. If need be, shorten on grinder. Put in your drill chuck to hold and sand the end smooth.
https://www.harborfreight.com/315-piece-roll-pin-assortment-67682.html
https://intlmilco.com/short-roll-pins-xm16e1-601-602/

Actually the tubes themselves were not drilled the roll pin would catch the threads if anything that’s the part of the tube that was drilled if anything (threads only)

Here’s my the rear section of my demilled 601 with tube and roll pin still intact for reference.  









H&R and Nodak drill/ed them lower just for looks