When you create a string of Xml using the XmlWriter and StringWriter, the string will have the encoding set at "utf-16" in the first line
i.e.
<?xml version="1.0" encoding="utf-16"?>

This is because StringWriter (http://msdn2.microsoft.com/en-us/library/system.io.stringwriter.aspx) only produces "utf-16" output, as strings are always "utf-16" in .Net

Refer:
Encodings in the .NET Framework
http://www.microsoft.com/globaldev/getWR/steps/wrg_codepage.mspx

"utf-16" Vs "utf-8"

http://www.thescripts.com/forum/thread177860.html

There is no way to get this as in "utf-8" using the StringWriter
i.e. the following is not possible
<?xml version="1.0" encoding="utf-8"?>

Because of this restriction, while creating the XmlWriter, we need to use the XmlWriterSettings and set the encoding to Encoding.Unicode. Note "Unicode" in Encoding.Unicode means "utf-16" as per MS terminology. ( http://msdn2.microsoft.com/en-us/library/system.text.encoding.aspx )

Code sample:

 public static string ConstructXml()
 {

  XmlWriterSettings settings = new XmlWriterSettings();
  settings.OmitXmlDeclaration = false; //already the default
  settings.ConformanceLevel = ConformanceLevel.Document; //already the default
  settings.NewLineOnAttributes = true;
  settings.Indent = true;
  settings.IndentChars = "\t";
  settings.Encoding = Encoding.Unicode; //strings in .NET are by default encoded as "utf-16", "Unicode" in MS terminology is "utf-16"

  XmlWriter writer = XmlWriter.Create(stringWriter, settings);

  //use the different write methods
  //writer.WriteAttributes(...)
  //writer.WriteAttributeString(...)
  //writer.WriteElementString(...)

  //finally construct a string out of it
  string xmlString;
  xmlString = stringWriter.ToString();
  return xmlString;

 }