It can, and if you are taking the XML from a hidden field then that's the way to go.
But if you're using Forms to merge the XML in, you really don't need to have a hidden field bound to it. You could just use script against the data DOM and do it directly into drop down and list box. Basically you'd use resolveNodes() to get a NodeList of the ndoes you are interesting in. The loop through the NodeList and add the values to your fields.
Chris
Adobe Enterprise Developer Support