No need to do a nested descent through the tree when you know in advance which nodes you want to alter. This revised version of your code does the trick for your sample data:

#!/usr/bin/perl

use strict;
use warnings;
use XML::LibXML;

die "Usage: $0 filename \n"
   unless ( @ARGV > 0 );

my $xml_file = shift;
my $xml      = XML::LibXML->new;
my $dom      = $xml->parse_file( $xml_file );

foreach my $add_user ( $dom->getElementsByTagName('ADD_USER') ) {
    $add_user->removeAttribute( "USER_NAME" );
    $add_user->removeAttribute( "PASSWORD" );
}

my $output = $dom->toString(0);
$output =~ s/(?<=\n)\s*\n//g;
open ( my $FH, '>', 'newilo2' ) or die "Could not open file newilo2 $!
+";
print $FH $output;
close $FH;
[download]

XML::LibXML is pretty powerful, but it's a steep old learning curve. If you do a lot of XML work it would pay to immerse yourself in the documentation for a while to let it all sink in. Good luck.

Edit: better choice of verb