C:\Perl\lib\libxml2\include
perl -V:archlib is for core perl modules only (no core module libml2::include).

7. further, "nmake install" leads to another FATAL error. A dialog box pops up with message: "xmltestReaderSetSchema could not be found in libxml2.dll" - meaning libxml2 was looked up, but not loaded or vice versa. From here, it is downhill all the way!
I can't find the string xmltestReaderSetSchema anywhere in either XML-LibXML or libxml2 sources. Its important that you copy/paste error messages. If you did, you could search for perl libxml2 xmlTextReaderSetSchema and find your answer already

Then, manually add many of the lib files needed for a successful make into the $EXTRALIBS and $LDLOADLIBS vars.

“Danger, Will Robinson!” You are never supposed to do that yourself.