It would have to be present on each client, true, but that doesn't mean each user would have to make the modifications manually. For a custom server, it would be no different from the other distributed custom files that each client needs to download and install in order to play in a custom environment--custom zone files, custom loadscreens, globalload file or .chr for character models per zone, etc. The modified .xml would just need to be included in that package of distributed custom files. The installation process (via a batch file or other scripting) could easily place these files where they need to go and copy the original files to another folder as a backup of each in case the client decides to return to a legit environment.
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