This is a very tricky question. Is it for a long term use 
or short term use? If its for a long term then SQL server 
is the answer and XML for short term.

U shuld store ur data in Xml bcoz XML is harware and 
software indepened language its used wide variety of 
company

To store the data, the best and appropriate way is SQL 
SERVER  as it is more compatible with any language and gud 
database.
i think for a short term XML also plays vital role in 
storing the data.

FRIENDS THE ABOVE DISCUSSION ANSWER IS COMPLETELY WRONG .

THE BEST WAY TO USE IS SQL SERVER BECAUSE IF WE WANT ANY 
MODIFICATIONS TO OUR DATA IT IS VERY EASY TO ORGANISE OUR 
DATA AND RETRIVES EFFICIENTLY.


BUT COMING TO XML IT IS DIFFICULT TO HANDLE LARGE AMOUNT OF 
DATA AND DIFFICULT TO MAINTAIN AND TO MODIFY HUGE DATA.

There are different point of view but under it there is a 
catch ... SQL SERVER stores the data in XML format only.

We can keep our data in both XML or SQL Server depend on
reqirement.
  1)xml is good for small database where manipulation is not 
  frequent.data connection is also light in xml.
 2)xml is good where we have to convert our data in diffrent
   database like ms-Access.
    Sql is good where we need manipualation frequently.and
data is big.

we can store the data in both xml and sql server, but the difference is you can store the static data in xml file like error messages, captions or menu items. But its not good for storing application data(it should store in any RDBMS)

LIke on of our friend said, there are different perspective 
to look at, 

How the data is stored & how frequently it is modified?

XML  - High risk and low cost
SQL - Low risk and Moderate cost

Does the data contains any relationship? for e.g. customer -
 transcation - Account.........

XML does not support any relationship between data or Keys 
etc.
SQL contains relationship, Constraints etc.

Does the data is used for just reporting? 

XML can support straight forward scenario like say, show 
the data for particular Acccount etc.
SQL supports more complex & real time business scenario.

How big is the data and how complex it is to maintain?

XML has the limitation, and the flexiblity depends upon the 
amount of data
SQL will be flexible as well as accomdate amount of data 
greater than XML

What kinda applicaiton uses the data?

XML can be parsed by many languages & compatible with 
different platform
SQL can be used with the limitation of platform used i.e. 
Microsoft Framework

At the moment, these are the things that came my way, 
please correct me if i am wrong.