The standard approach for data storage in SharePoint is lists and libraries. However, there are a few scenarios where you need to deal with XML data. Consider a scenario where you need to integrate a flash component in SharePoint which has dynamic XML data. Or consider another case where you need to manipulate XML data returned by a web service.
XML is more suitable for hierarchical data. So in some cases you would want list data to be converted into XML first, before doing any manipulation. Now the next question is – how would you render the output as desired HTML from an XML data source?
Check out the following post for details: