Hi,
You just need to modify the web.config in the root of your site.
For an example, if your site runs at port 80, then you should modify the web.config in C:\Inetpub\wwwroot\wss\VirtualDirectories\80.
You mentioned "I can open my xml page from the sharepoint server in IE (And from my own PC) which displays it correctly but when I try to display the xml using the same path using rss ticker I get the error".
I didn't know clearly about this you mentioned.
The web part downloads data in the identity of the logined in user. So are you sure the user have permission to access data.
Or could you try to impersonate an administrator.
Or you could read the following document and take further steps.
http://support.microsoft.com/?scid=kb;en-us;871179
Microsoft Online Community Support