This is a bit confusing. I got the VFP Beta 1 version which has different parameter order as:

CursorToXML(nWorkArea|cTableAlias, [nOutputFormat, cOutputFile ,...]])
where ... are the rest of the parameters.

>CursorToXML(nWorkArea | cTableAlias, cOutput [, nOutputFormat [, cSchemaName [, cSchemaLocation [, cNameSpace [, nFlags]]]])


You may have a different beta version. I can generate the XML output without problems however, I can't open the XML file from my IE.