I don't see encoding problem in the response, the strange thing is that your SOAP response contains only one <return> tag which, in turn contains an XML stream.
If you want to use the contents of the "inner" XML, you should parse it twice: parse the SOAP response and get the contents of the <return> tag in a var, then parse the var to get the values.
Update: perhaps your problem is elsewhere. The format of your SOAP packet is really unusual, for there's no need to encapsulate an XML stream into a SOAP packet (which is XML itself). So maybe is the script generating the response to blame: it should not embed the response into the <return> tag as a string but as pure XML.
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