For your data the best way is probably to do all your internal processing in utf-8, using the data you get from XML::Parser or any other module, and then to convert it, using Text::Iconv (or Encode with perl 5.8) on output.

perl 5.8 should really help for this kind of problem: regexps and hask keys work with utf-8 and the Encode module, included in the core, handles conversion from Perl's internal format to whatever encoding you need.

And of course you can use XML::Twig with the keep_encoding option set for the twig.