Embedding XML in XML in a string is not recommended because all characters needs to be escaped.
Edit: Compared to Base64 it is more complex, sender must do the escaping correct. XML should be encoded so that <, >, ", and & show up as <, >, " and &, respectively.
Edit: you can use CDATA (Thanks Achiel)
I know AFAS is doing the same thing with their webservice. The reason why they are doing it is that they can send all kinds of different xml's with only one service. But I still think they could have solved that in another way. It just bothersome to change the string to a Mendix xml filedocument. On the other hand, this needs only to be done once and then all is working.