We used binary XML heavily for Superman Returns: The Videogame. We're talking thousands and thousands of files. It worked OK, but honestly didn't seem worth the effort. It ate up a noticeable fraction of our loading time, and the "flexibility" of XML didn't scale up. After a while, our data files had too many weird identifiers, external references that needed to be kept in sync, and other strange requirements for them to really be feasibly human-edited any more.
Also, XML is really a markup format, and not a data format. It's optimized for a lot of text with occasional tags. It isn't great for fully structured data. It wasn't my call, but if it had been and I knew then what I knewknow now, I probably would have done JSON or YAML. They're both terse enough to not require compaction, and are optimized for representing data, not text.