I would make sure you are releasing the memory from your code + have the latest XML patches / service packs for the XML parser stuff. I would suggest looking at using ASP.NET, which has great XML support and automated memory management.
Can you reproduce this on multiple machines? if so, then it's worth reporting to MS.
Steve Schofield
Windows Server MVP - IIS
http://weblogs.asp.net/steveschofield
http://www.IISLogs.comLog archival solution
Install, Configure, Forget