Microsoft's Visual Studio Express is superb, and Notepad++ is good too, but I've recently discovered another free one that works on Linux and Windows:
http://xml-copy-editor.sourceforge.net/
It's not perfect, but it's got some really nice touches like the ability to collapse and expand the XML on screen. The best feature by far though is the autocompletion of xml elements, which picks up suggestions intelligently from the rest of the page.
It means that within a gauge, you can start typing "Gau" and it will suggest "<GaugeOffsetX>" and "<GaugeOffsetY>" as options, and will automatically fill in the </GaugeOffsetX> entry for you as well.