<?xml version="1.0" encoding="ISO-8859-2">
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I gather that XML::Simple can ride on top of XML::Parser. From the XML::Parser docs:

Expat has built-in encodings for: UTF-8, ISO-8859-1, 
UTF-16, and US-ASCII. Encodings are set either through 
the XML declaration encoding attribute or through the 
ProtocolEncoding option to XML::Parser or 
XML::Parser::Expat.

For encodings other than the built-ins, expat calls 

the function load_encoding in the Expat package with 
the encoding name. This function looks for a file in 
the path list @XML::Parser::Expat::Encoding_Path, 
that matches the lower-cased name with a '.enc' 
extension. The first one it finds, it loads.
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Matt