This seems to be caused by another installer, which has opened the DLL.XML and saved it back in a different file format. More precisely, it seems the file format the file was saved back to doesn't match the encoding in the XML header.
The default XML file is supposed to be saved in ASCII file, encoded with the standard Windows 1252 codepage, which is what the header says. Another installer might have changed the file format to something else, like UTF-8 or Unicode, but it hasn't updated the XML header to reflect the change ( it shouldn't have changed the format ).
So now, the standard MS XML checking routine, which our installer use to verify the XML file is correct, is reporting an error, because that IS an error, caused by another installer.
To fix this, you'll probably have to open your DLL.XML with a Text editor that allows you to convert the file again into ASCII, and save it. Some editors refer to this as "Dos format" or "Windows format".
A good free text editor that might help you doing this, is PsPad:
http://www.pspad.com/Use the "format" menu to change the file format to "ANSI" and save it back.