How do you like that?
xml.el had hard-coded ” \t\n” throughout when it went looking for whitespace to skip. Which is all probably well and good for files that Emacs loads and stuff. But now that we are dealing with XML straight off the network, we have to deal with what other machines consider whitespace, which includes \r.
I’ve posted my version of the file, but I’ll be sending the diffs back to Emmanuel Briot for inclusion into Emacs since he is the official maintainer.