As said before, you can escape the < by using < or you can use CDATA sections:
<sourcetype>
<name>G1</name>
<desc>group 1 to decode</desc>
<rules>
<rule><![CDATA[['^\d(.)','14']]]></rule>
<rule><![CDATA[['^(<xyz>)']]]></rule>
<rule><![CDATA[['^(</xyz>)']]]></rule>
</rules>
</sourcetype>
That's still ugly, but a little easier to read than the version with <, and at least you can cut and paste code in the rule elements.
The <![CDATA[...]]> construct prevents everything in the section from being parsed as XML. You still need it to be valid text (unicode by default) and not to include ]]>, but anything else is fine.