XML can be updated dynamically by any application that can handle XML obviously you need to know the document structure.
RSS feeds are simply an XML document with a defined and controlled node structure, they can be updated "on the fly" by code.

Yes, XML can be used with databases. SQL 2005 has direct support for output as XML rather than needing a third party app.

If you want to make a snapshot of data available (RSS feeds for example) to external consumers you can export the db data to a XML file.

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