Plain notepad works, but XMLSpy highlights your XML tags, which makes it easier to read, and it automatically completes tags that you open (saving you typing time). Also, if you save an XML with a hanging tag, it will warn you that your XML is invalid, thus preventing the frustration of trying to load your mod and suffering repeated crashes while you try and figure out which file went bad.
I've been using the free version to edit my mod files, and it works great.