The way you are trying to set up XML::LibXML is not easy. For me, it has always been easier to set the -L flags in the Makefile.PL. Then, much like Activestate, I get the dlls as close to the Perl modules as I can. Win32 libpaths have always seemed a bit like voodoo to me.

The easiest way to set up XML::LibXML is to install the package using ppm. You can find the most recent version at Randy Kobe's repository. Your repository settings will be a little different depending on whether you're using Perl 5.6 or 5.8. The for Perl 5.6, the repository address is http://theoryx5.uwinnipeg.ca/ppmpackages/. For Perl 5.8, the address is http://theoryx5.uwinnipeg.ca/ppms/.

Good luck!