Have you used the pointcloudcoercer to decompose the XYZ into points?
According to the documentation, the Points/Lines input port of the SurfaceModeller should accept point clouds, so I think it must be a different issue. In fact, it worked for me when I just tried it (see screenshot below).
So... maybe try reading the point cloud into the Data Inspector to make sure the reading part is correct. Then, well the only parameters I can see that would make a difference are Surface Tolerance and Output Contours, so check those.
If neither of those work, then please do contact our support team for assistance (safe.com/support)
Regards
Mark
Product Evangelist
Safe Software Inc
btw - which Reader are you using? The Point Cloud XYZ one?
Which version of FME?