In that case you may be hitting a limitation with the XML functionality. I believe some of the XMLTYPE functions are limited to 64000 bytes at the moment. I'm assuming the SQL/XML is processing this information using XMLTYPEs, so it may never work on large documents.
You should raise an SR with Oracle Support to check this.
I was able to create XML CLOBs in my local database without any such issues on large documents(50K records) using SQL/XML functions. Suddenly this issue is occurring today in my local m/c. It may go fine in other environments. I will give it a try and let you know. Thanks for your guidance and support.