The XML::Twig page has an overview with XML::Twig examples on the Perl Monks web site. I found an example by Michel Rodriguez, the author of XML::Twig, that explains how to use an input filter to read an ISO-8859-1 encoded XML file:
my $twig = new XML::Twig( input_filter => 'latin1' );
input_filter to the value of
the constructor call is all that's needed.