You'd have to create a custom menu control to perform the edit capabilities... but that didn't seem to be the point of your question.
I don't quite follow why XML would be better for hierarchical data than a SQL db? If you're using 2008 the Node datatype is perfect for it. If not, some type of adjacency matrix seems sufficient...
Performance wise you should be caching your relatively static result sets (menu structure would fall in this category) which would help negate the performance of navigating the parent/child relationship through SQL (cumbersome even with CTEs).
Can you perhaps elaborate on your thinking of XML over the DB?
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