xxxxx - do not use ROUND as a guess I was too slow typing
If ROUND scores 0, H is the first letter because HOUND has 1 and the only difference is the first letter.
If ROUND scores 1, the second letter is O. HOUND and HOLDS both have 1. From VINES we eliminate the S from HOLDS and from FRAUD we eliminate the D from HOUND. From XYLEM we can eliminate the L from HOLDS and from LAUGH we can eliminate the U from HOUND. We are left with H O _ N/D _. Since bothe HOUND and HOLDS have 1 letter in common it is impossible for N and D to both be correct in the 4th spot and thus neither is correct. Since this is the case we are down to H and O. If ROUND scores 1, then the H was not the letter because the only difference between ROUND and HOUND is the first letter, and thus the O must be.