All XML parsers work in one of two ways. They are either tree based or stream based. A tree-based parser will always read in all of your document and will therefore have a large memory footprint for a decent sized XML document. Stream-based parsers look a the document one token at a time and therefore have far smaller memory requirements.
XML::Parser can be used in both modes. From what you're saying, it seems that XML::XPath uses XML::Parser in tree mode. I'm having difficulty thinking how you could build an XPath processor using a stream-based parser. It's probably possible - but I think it would be very hard work. I don't know of any that currently exist.
If you don't like XML::XPath's memory footprint, have you thought about switching to an alternative (i.e. stream-based) approach?
 Let me pre-empt mirod's reply and point out that XML::Twig gives you the ability to build smaller trees from part of your XML document.
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