Even if XML isn't the cause of all the problems with the format's hand editing experience (it probably isn't), the decision to use XML is a clear indication that human edit/readability was, at best, an afterthought. Probably nobody spent any time worrying about making sure it was a good experience.
This is what I think we really need. A general-purpose programming language with first-class dual mode (visual and textual) editing. A Lisp/Scheme-like language would perhaps be best suited for this, although I've seen specific applications that did it with Java (GUI code generators) or SQL (query generators). It needs to have true two-way functionality so the programmer can switch back and forth at will--the visual editor has to generate code that a human can easily read and edit, and it also needs to be able to generate a readable visual representation for code that was written by a human. And if you make a syntax error while in textual mode, the IDE should warn you proactively that your code doesn't compile, instead of just waiting for you to switch back to graphical mode and breaking horribly, and so on.