Well, I love Perl, and it happens that there is a whole bunch of modules on CPAN specially dedicated to XML processing, from getting XML out of data base to writing XML to of course parsing and transforming XML.

So I guess, not too surprisingly for a Perl Monk, I would use Perl... well, I actually do use it every day

But of course it depends of what kind of processing you have in mind, XSLT might be appropriate for some simple tasks, pure C can probably be faster if you know what you are doing and I am sure a case could be made that even Java can be used... your pick.