When emerging libxml first the ibiblio URL is tried (http://www.ibiblio.org/pub/Linux/distributions/gentoo/distfiles/libxml-1.8.17.tar.gz) and this returns a 404 NOT FOUND, portage then falls back on a copy stored on the gnome server (ftp://ftp.gnome.org/pub/GNOME/stable/sources/libxml/libxml-1.8.17.tar.gz) but this is an invalid URL as well. Libxml seems to be a dependency for (among others) xchat and squirrelmaol which makes it something of a pain.
SRC_URI has been fixed :)