Are you wanting to deal with multiple connections at once? Good asynch socket processing is a must in that case, to avoid one thread per connection.
Otherwise, you just need an XML parser that can deal with a chunk of bytes at a time. Expat is the canonical example; if you're in Java, try XP. These types of XML parsers will fire events as possible, and buffer partial stanzas until the rest arrives.
Now, to address your assertion that there is no notification when a stanza ends, that's not really true. The important thing is not to process the XML stream as if it is a sequence of documents. Use the following pseudo-code:
stanza = null
while parser has more:
switch on token type:
START_TAG:
elem = create element from parser state
if stanza is not null:
add elem as child of stanza
stanza = elem
END_TAG:
parent = parent of stanza
if parent is not null:
fire OnStanza event
stanza = parent
This approach should work with an event-based or pull parser. It only requires holding on to one pointer worth of state. Obviously, you'll also need to handle attributes, character data, entity references (like & and the like), and special-purpose the stream:stream tag, but this should get you started.