Most of our XML development to date ( KML for Google Earth, LandXML ) has been done with Microsoft Visual Studio 2005. We have recently implemented some very powerful commercial tools such as XMLSpy.
Our development environment at gINT Software is primarily Microsoft Windows, from Windows XP on the developer desktops to Windows Server 2003 R2 and Windows Vista Enterprise on the servers. We have a variety of databases including SQL Server 2005 and Oracle 10g. We are using XMLSpy Professional 2007, since it is much more than just an editor, and we have had no problems when parsing and validating larges files including the schema and examples from DIGGSML. We are currently testing Schema Agent/Schema Server as a long term XML management solution.
Our initial DIGGSML compliant application, AGS to DIGGS translator, currently supports v0.7 of the DIGGSML standard. We hope to get a Schema that validates so we can complete this work.
There really is no reason for anyone to ever generate invalid XML. Or maybe more importantly there's no reason for anyone to accept invalid XML!