Can you make the "submit" button execute JavaScript where it does the following:
1. Loop through the contents of the grid and build an XML string.
2. Put the XML string into a hidden text field on the form.
3. Submit the form.

This assumes that all of the values you need for your XML are there on the form. If not, then this won't be an option.

Can you try the following:
1. Temporarily run your application pool under an account with administrative privileges and see if you can reproduce the error.
2. If you can reproduce the error, then write a quick Windows Application test app and run the same code interactively (i.e. clicking a button on a form, rather than invoking a web application).

If it works interactively, but not in a web app, then you may need...