I'm having a hard time grasping the scope of this project. Are you wanting to provide a compiled straight-from-print downloadable issue paper, or are you wanting to present the articles from within the website itself? if it's the former, then simply compile each large-format PDF page in Acrobat and save it as a screen-compressed multi-page PDF. This will give you a nice, tight, easily transferable copy of the paper. But it sounds like you're going for more than that, so I'll assume the latter.
To generate the articles from within the website, all you need are two things: you need the copy, and you need any associated images.
You certainly could try the XML export coupled with a custom XSLT stylesheet to map the data from InDesign's XML to HTML, but it sounds like that's going to be a lot of work and you'll still need them to give you a file. I really don't think it's worth the hassle, especially since all you really want are txt and jpeg files.
I'd suggest taking ratbastid's approach. Think of it this way: what are the writers using to write their articles? it's not InDesign. This newspaper has to have some way it moves the copy of the articles around. It could be incredibly rudimentary (think floppy disk with loose word files) or it could be a pretty complex CMS/Database. Whatever it is, that text exists somewhere in a very accessible format.
If they can just send you txt and low-res jpeg files, you can mark them up for the website. If you want to make it dynamic so they don't have to send you anything and you don't have to mark up anything, you're going to need to get your hands dirty with a database and some server-side scripting. I recommend php and mysql.
Give the newspaper an authenticated html form where they provide the author, headline, body text, images, and whatever else they need for an article, then have php store the information into a database. On the general access website, have php load the article data from the database into an html template and voila: a perpetuating system for instant-web publishing.
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