Most dwarf keepers feed solely a diet of newly hatched brine shrimp. It's better to vary the diet and feed newly hatched brine, enriched 24 hour old brine, enriched copepods. But yes, dwarfs only eat live food and yes you will have to hatch & feed live brine 2 to 3 times per day.
The tank you mention, however, is at risk for hydroids. Most dwarf keepers start with sterile rock and/or treat their tank with panacur before adding dwarfs. However, not sure the Xenia would survive that.
Dwarfs are rather time consuming...and require setups for hatching brine, enriching brine, keeping copepods, etc. If you have the time/space/money they are fun to watch. IMO, the larger seahorses are less work - but you would need at least a 20 gal tank for a pair.
Tom