This paper presents the XMM-Newton first-light observations of the Hickson-16 compact group of galaxies. Groups are possibly the oldest large-scale structures in the Universe, pre-dating clusters of galaxies, and are highly evolved. This group of small galaxies, at a redshift of 0.0132 (or 80 Mpc) is exceptional in the having the highest concentration of starburst or AGN activity in the nearby Universe. So it is a veritable laboratory for the study of the relationship between galaxy interactions and nuclear activity. Previous optical emission line studies indicated a strong ionising continuum in the galaxies, but its origin, whether from starbursts, or AGN, was unclear. Combined imaging and spectroscopy with the EPIC X-ray CCDs unequivocall...