You would have to create a utility that reads your xml file then creates the required SequenceFile with steps.
Have a look at the examples in the TestStand\examples\Tools folder. There is a couple of examples.
This use a ini / txt file to define the steps to create. Also it uses a template.seq file to hold the Steps that are to be used in the target sequence file and uses the Clone method, rather that using the type palettes.
Hope this helps
I think the best place for you to start would be to take a look at our sequence builder tool shipping example. Locate this example at <TestStand>\Examples\SequenceBuilderTool. This example acts as a tool for programmatically creating and executing new test sequences. The tool clones prewritten and configured test steps located in a template sequence to create a new test.
This example does however use LabVIEW to gather the steps. It either uses LabVIEW to directly display step names in a listbox or read from an .ini file.
If you have XML code, perhaps look at some of the XML VIs in LabVIEW to manipulate the data.
Hope this helps!