I'm doing samething rigth now, you can use this code to use xml web service respond to create a databale and use it as datasource for your grid.
//read xml string
StringReader sr = new StringReader(xml);
XmlTextReader xmlTr = new XmlTextReader(sr);
//load xml data in dataset
DataSet ds = new DataSet();
ds.ReadXml(xmlTr);
//load xml data in grid
wgTest.SetDataSource(ds.Tables[0]);
wgTest.DataSource = ds.Tables[0];
The problem I have now is that the search option funcitonality in the grid column (dropdown list filter at the top) is dissapearing, if you can find a way to keep it working you will save me man
Hope it helps