The "String problem" is definitely one of the most unfortunate parts of Haskell. Using a linked list of chars for a string is just laughable from a performance and resources standpoint. The good news is that the problem should be solved now: we have Data.Text for unicode strings, and Data.ByteString for binary/ASCII/UTF-8 strings. Both are very efficient and implement a robust API for common string operations. The bad news is that there are still far too many libraries that use the old crummy data type for strings, including much of the Prelude. And, I guess in the interest of simplicity, many beginner tutorials tend to use String as well. This is quite unfortunate, but it does seem to be changing: Aeson uses Data.Text, the ClassyPrelude ditches String almost entirely (keeping it for Show only), and in general most modern libraries avoid String.

Hopefully HXT will be updated to use modern string types soon. In the meantime, I believe that xml-conduit (http://hackage.haskell.org/package/xml-conduit) might be what is desired.