Any time you save a text file, like with Notepad, you get to choose what encoding is used. It turns out there are several out there, and it says what encoding is valid on the first line:
Code:
<?xml version="1.0" encoding="[B]ISO-8859-1[/B]"?>
(Some XML files seem to lack this information though, so I imagine something like UTF-8 would be ok also.)