Are you sure the pound is UTF-8 encoded? Depending on the software that created the XML document it might well be in latin-1, in which case you should set ProtocolEncoding to 'ISO-8859-1' (or even better declare the encoding in the XML declaration, as it is the XML document might not be well-formed if it has no encoding declaration but is not encoded in UTF-8 or UTF-16).

UTF-8 is the default encoding for expat and XML::Parser so you don't have to specify it using ProtocolEncoding, and if the parser dies on a special symbol it is usually because it is encoded in something else, usually 'ISO-8859-1' if you use western software (and use the pound symbol ;--)