As far as I know:
a. You can open the XML file to look at it, directly from the webserver.
However, in WOrd 2000/2002 all you will probably see is the raw XML text,
with all the tags. In Word 2003 you may get to see a rather better layout.
If the XML file is essentially the equvalent of a flat-file database wrapped
up in XML encoding, you might be better off trying to open it in Excel if
you have that.
b. Word cannot use /any/ file located at a URL as a data source, unless it
is also on a Windows share and you can refer to it using a a UNC name
(\\servername\sharename\path) or drive letter/path name type name
(n:\pathname). So if you can only refer to the file via a URL, you have to
make a local copy of the file before you can use it as a data source. For
delimited text files, you should then be able to use the built-in facilities
of Word to attach it as a data source. For .xml files, you would either have
to be able to open the file and save it in another format (Word 2003 might
be able to do that; Excel might be able to it) or use e.g. an xslt transform
to generate a format Word can work with. There is potentially another way
that involves writing a Word text converter (I have one but it's incomplete
and extremely crude).