Microsoft made available the XSDInfer .NET componet -
http://apps.gotdotnet.com/xmltools/xsdinference/ - that, in companion with
xsd.exe, not only generates the XML instances from XSD, but does it almost without the problems,
mentioned for
xsd.exe.
Worth to say, that it is shipped with BTS 2004 in the box. The differnce is just a version : BTS 2004 comes with 1.0.1.0, the released utility - 1.0.2206.0.
The excellent example of using xsd.exe may be foung
here.