After looking more at it, by the use of loData.GetXmlLSchema(), I can see the UTF line and the schema. However, the method that returns an XML string, is having that line on top:

<?xml version = "1.0" encoding="UTF-8" standalone="yes"?>

But, after the conversion it gives:

<?xml version="1.0" encoding="utf-16"?>

Again, once the conversion done on the client side, it displays the data ok. But, if I do that conversion at the WS level, this is when the data is not displayed.

Could that encoding be a factor?