Thanks toolic! I went with your modification and extended it a bit to include a couple more conditions.

 
use warnings;
use strict;
use XML::Twig;
my $source_file = 'datafile_towns.xml';
my $out_file = 'illytowns.xml';
my $twig = XML::Twig->new(
    twig_handlers => { town => \&town },
);

$twig->parsefile($source_file);
open (my $fh_out, '>', $out_file) or die "unable to open '$out_file' f
+or writing: $!";

sub town {
    my ($twig, $town) = @_;
    my $townx = $town->first_child('location')->first_child('mapx')->t
+ext;
    my $towny = $town->first_child('location')->first_child('mapy')->t
+ext;
    if (($townx > 556) and ($towny > -2502) and ($towny < -2214)) {
        print $town->first_child('towndata')->first_child_text('townna
+me');
        print "\n";
    }
    
    $twig->print($fh_out);
    $twig->purge;
}
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I've added a file handle to print the data to a file rather than to STOUT; however, it is not working correctly, as instead of getting a file with a list of town names I get a a full set of tags for 1 XML element (probably the last element in the XML file). The STDOUT generated by the print statement inside the twig is correct.