There are versions of XML. FCP 7 used XML versions 1-5. FCP X uses a new, more robust and powerful verions of FCPXXML as some are calling it. Version 5 and this new version of "Rich XML" are not compatible.
A company called Automatic Duck has been making XML based utility apps for media production for years now, and will most probably be releasing an app to allow FCP 7 XML exports to be ingested into FCP X.
Many companies are in process of making their software 100% compatable with the new FCP X version of XML. So you'll see more and more apps talking with FCP X very soon. BlackMagic is going to include it very soon in the LITE version of DaVinci soon, for example.
While I understand all this BenB. It is yet an other fail to the FCP7 community. Communicating that 10.0.1 includes XML suggest compatibily with FCP7. Explicityly stating that older versions of XML are not supported, would have made the frustration less. (And less waste of time trying to test it). Adding to that the "trash first before update", this is again a step away form "Pro" or renewing trust form the FCP7 userbase...
Got caught with this one also. I was unsure because the description was not very clear depending what I read. I was real excited about the prospect of being able to use XML for my existing projects to bring it into X to see how it worked. A bit of a bummer that there is no way to do it. Would have liked to do some testing between the two.
Going to play with some more of the new features and see how it goes. I still have to do alot of work in 7, but there are some things where I could work in X and once I got past the hangs, not too bad.