Competing models for broad spectral features in the soft X-ray spectrum of the Seyfert I galaxy Mrk 766 are tested against data from a 130 ks XMM-Newton observation. A model including relativistically broadened Lyalpha emission lines of O VIII N VII and C VI is a better fit to 0.3-2 keV XMM RGS data than a dusty warm absorber. Moreover, the measured depth of neutral iron absorption lines in the spectrum is inconsistent with the magnitude of the iron edge required to produce the continuum break at 17-18 Angstrom in the dusty warm absorber model. The relativistic emission line model can reproduce the broadband (0.1-12 keV) XMM EPIC data with the addition of a fourth line to represent emission from ionized iron at 6.7 keV and an excess due to reflection at energies above the iron line. The pro le of the 6.7 keV iron line is consistent with that measured for the low-energy lines. There is evidence in the RGS data, at the 3sigma level, of spectral features that vary with source flux. The covering fraction of warm absorber gas is estimated to be 12%. Iron in the warm absorber is found to be overabundant with respect to CNO, compared to solar values
