I have used the XML::Writer utility from CPAN to create similar sized XML documents. I have never run into any memory issues with it but that does't mean they don't exist. Take a look and see if it may help you. The module is very easy to use and I found great value in it.
Comment on Re: Creating huge files with the Template Toolkit
Indeed.
Do you *really* need to use TT? I really can't think about a reason to use it, since XML::Writer would deal better with special characters, encoding and so on...