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.