gistfile1.txt

using System;
using System.Text;
using System.Xml;
using System.IO;

namespace TestXmlFormatter
{
	class MainClass
	{
		public static void Main (string[] args)
		{
			string xml = "<response><error code='1'> Success</error></response>";
			Console.WriteLine (xml);
			var formattedXml = Beautify (xml);
			Console.WriteLine (formattedXml);
			var x = Console.ReadLine ();
		}

		static public string Beautify(string xml)
		{
			string result;
			var encoding = new UTF8Encoding (false);

			using (MemoryStream output = new MemoryStream ()) {
				var reader = XmlReader.Create (new StringReader (xml));
				using (XmlWriter writer = XmlWriter.Create (output, new XmlWriterSettings { Indent = true, Encoding = encoding })) {
					writer.WriteNode (reader, true);
				}
				result = Encoding.UTF8.GetString (output.ToArray ());
			}

			return result;
		}
	}
}