The reader/reader.xml file you have quoted above is not correct for the latest version of Morkl's modified reader app (June 2012). Here is a link to the PRST1 Modified Reader wiki which gives links for relevant detailed info, including a download link for the June version. You should read it through before installing. There are sample css files in the download zip. No css files are generated during the install, you have to create them - using the wiki and/or samples.
Thanks for your fast and detailed information.
Just one last question, if I find bugs, where could I report them?
Many thanks for your help.