The XStream library uses the javax.xml.stream.XMLInputFactory and javax.xml.stream.XMLOutputFactory, you can control which implementation of this factory should be used.
The Factory is discovered using this algorithm:
From Camel 2.2.0, you can set the encoding of XML in Xstream DataFormat by setting the Exchange's property with the key Exchange.CHARSET_NAME, or setting the encoding property on Xstream from DSL or Spring config.
To use XStream in your camel routes you need to add the a dependency on camel-xstream which implements this data format.
If you use maven you could just add the following to your pom.xml, substituting the version number for the latest & greatest release (see the download page for the latest versions).