The Liquid XML Data Binder defaults to using Microsoft MSXML6 to parse XML Schema (XSD). This does not permit the use of DTD, due to security issues, and so fails if your schema (or an included schema) contains a reference to DTD.
Please see the MSXML Security Overview
To work around this issue, if Microsoft MSXML6 fails, Liquid XML Data Binder then attempts to use Microsoft MSXML4 if it is present on your system. MSXML4 is a less strict parser and does not have the same DTD constraint.
You can download MSXML4 from the Microsoft web site
Please note MSXML4 and MSXML6 can be installed side by side.