I'd assume it wouldn't be, since the iPod can have a small subset of the songs in your iTunes library.
My recommendation is that you backup the damaged xml file, and move it so iTunes doesn't find it. When you start iTunes, the library will be empty. Then reimport your music folder. All the ID3 tags should come across OK, as iTunes stores info like Title, Artist and Album in the song file itself (unless the file is not write-able, in which case it does indeed use the XML file).
Only the "My Rating", "Play Count" etc are kept in iTunes Music Library.xml file.
Thanks for the response. I was under the assumption that the playlists were stored in the .xml file. I backed up the iPod before the .xml file was damaged.
What I'm trying to save is the playlists. I have re-imported the music without any trouble. Amongst my playlists is a killer '80s playlist that has over 200 songs that I don't want to have to re-create. Any tips or tricks are appreciated. Thanks again.