I work for a small nonprofit. Our funding body previously required reports in csv format. they now want them in xml. Of course they are not providing any funds! Can this be done via a custom report or would it be an extension? Would Drupal views combined with the views Data export module work? any assistance or pointers greatly appreciated
As you've noted, your best bet is to use Drupal to generate the XML (whatever shape that might take as Alan Dixon commented).
Views Data Export, Views Datasource or Services Views will work if you require the flexibility of Views filters, etc. It really depends on what data need to be in the reports. As Eli noted in the comments above, using Services by itself could work, but depending on how the data is coming in, a Views solution is probably your best.
Another module to consider (again, depending on the data you need) is CiviCRM Entity. It will open up a lot more CiviCRM data to Drupal Views.