How powerful is XML

Wouldn't that cause copyright issues? What with all the patent trolls running around...

No. Just like any software libraries come with their own licensing about who can use them, how they can use them, how they can distribute them, etc.
http://en.wikipedia.org/wiki/Library_(computing)

Thanks for answering the questions, I'm still a bit unclear on the XML and proprietary format bit though. I think I get what a proprietary format is, but what do you mean by 'form its own representation'?

You have an XML file.
You tell the library to "read" the XML file.
Ok. What did it just do?
Did it create a structure in memory to represent the nodes and how they relate to each other?
Did it create an ADO.NET recordset to represent the data in the XML?
Did it turn the file into an array of arrays of strings?

Libraries digest the data and "do" something with it, but what they "do" is entirely dependant on the library itself.

Then what you do with what the library did with the data may also be completely different.
Your game may write out it's areas to an XML file that is then read in by a library into a DOM document that your server then iterates through and converts the various segments into specific things in the game world.

A "Proprietary format" is any format which is not publicly standardized. XML is a public standard. You can go read about it on W3C and create XML that anyone can read just fine. INI files are not standard. Not all INI files can be read by all parsers, so INI files tend to be proprietary.

The WZ files are a proprietary format. Wizet looked at the world around them and was unhappy with the current solutions for data storage (especially having to mix images and data together), so they rolled their own format. Blizzard Entertainment rolled their own proprietary format for their MPQ files and have used it across multiple games.

All a format does is represent how data is stored.