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Brake fluid low.
My 2004 did the same thing and I went down the same line of thinking.
I had a stuck brake cylinder in the rear drum brakes that had leaked fluid out. Replaced the rear brakes, bled the brakes, and added more fluid. No more red brake light on the dash.
Does the pedal come back high enough? You said you could use your foot to pull the parking pedal up more.
See if there is a spring on the pedal. Maybe the spring is weak or the pivot point needs to be lubed?
Or maybe the cable isn't lubricated enough to snap back enough to turn the light off?
Press the pedal and let the snap back. Then go under the Xterra and look and see if the park cable is loose. You should be able to lift it with your hand just an inch or so.
If it is tight, then there may be an adjustment on the cable.
Otherwise, take the rear wheels off and adjust (loosen) the adjusting screw, just one or two turns. No more than this even, if it does not fix the problem.
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