XML::Simple's design is extremely problematic. So much so that the module's own documentation tells you not to use it. wtf are you doing using this module?!

XML::Simple and ISO-8859-1 encoding buggy?

Decoding is handled by the XML parser. You didn't specify which XML parser you are using. (No, XML::Simple is not an XML parser.) XML::Parser is commonly used by XML::Simple, and XML::Parser handles iso-8859-1 just fine.

use 5.014;
use warnings;

use XML::Simple qw( :strict );   # Taken from OP.
use File::Slurper qw( read_binary );

my $xml = read_binary($ARGV[0]);

# Make sure we know which parser is being used.
local $XML::Simple::PREFERRED_PARSER = 'XML::Parser';

# Taken from OP.
my $doc = XMLin($xml, ForceArray => 1,KeyAttr => [ ]);

say sprintf "%vX", $doc;
[download]

$ perl a.pl a_latin1.xml
E9

$ perl a.pl a_utf8.xml
E9
[download]

On a terminal execting UTF-8:

$ cat a_utf8.xml
<?xml version="1.0"?><root>é</root>

$cat a_latin1.xml | iconv -f iso-8859-1
<?xml version="1.0" encoding="ISO-8859-1"?><root>é</root>