Ah, ok. The Media uploader only uploads certain files: http://codex.wordpress.org/Uploading_Files#About_Uploading_Files_with_WordPress
The easiest way around that is to of course upload the file via SFTP or FTP instead: http://codex.wordpress.org/FTP_Clients
Another way around it is to add this to your theme functions file, which apparently does work, but I honestly never recommend things like this (when FTP is perfectly doable option):
add_filter('upload_mimes', 'custom_upload_xml');
function custom_upload_xml($mimes) {
$mimes = array_merge($mimes, array('xml' => 'application/xml'));
return $mimes;
}