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Handy features include:

Tree View synchronized with Node Text View for quick editing of node names and values.
Incremental search (Ctrl+I) in both tree and text views, so as you type it navigates to matching nodes.
Cut/copy/paste with full namespace support.
Drag/drop support for easy manipulation of the tree, even across different instances of XML Notepad and from the file system.
Infinite undo/redo for all edit operations.
In place popup multi-line editing of large text node values.
Configurable fonts and colors via the options dialog.
Full find/replace dialog with support for regex and XPath.
Good performance on large XML documents, loading a 3mb document in about one second.
Instant XML schema validation while you edit with errors and warnings shown in the task list window.
Intellisense based on expected elements and attributes and enumerated simple type values.
Support for custom editors for date, dateTime and time datatypes and other types like color.
Handy nudge tool bar buttons for quick movement of nodes up and down the tree.
Inplace HTML viewer for processing xml-stylesheet processing instructions.
Built-in XML Diff tool.

Support for XInclude
Dynamic help from XSD annotations.
Goto definition to navigate includes and XSD schema information.

XML Notepad 2007