Cannot help it, is the Z: drive an USB stick (that's the last time I saw this error)
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Set up hundreds of instances on those version without any...

Have you validated the XML against the XSD?
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Here is what I did on the subject
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Reaping the benefits of the Window functions in T-SQL
CREATE FUNCTION [dbo].[DelimitedSplit8K_LEAD]
--===== Define I/O parameters

Here is one suggestion, not performance tested yet.
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CREATE OR ALTER FUNCTION dbo.ITVFN_CONTAINS_CTRL_CHAR
(
  @INPUTSTR VARCHAR(8000)
)
RETURNS TABLE
WITH SCHEMABINDING
AS