Branden's right -- the code we write essentially always happens on the main thread; while the network call itself does happen on a background thread, the handling of that call happens on the main one.
One thing to keep in mind is that the WebService and HTTPService classes will likely attempt to serialize your responses automatically, which could mean taking that processing hit unnecesarily. Using URLLoader, on the other hand, could give you more direct access to the response data, allowing you to work more directly with it without the unnecessary overhead of that built-in processing.
In that light, if you find you do have to process the entire XML file, you might consider breaking it up into chunks somehow, and distributing the processing of those chunks into separate functions, rather than handling everything within the scope of a single function. Just doing that might allow the player to continue updating the UI while you're processing that big bunch of text (processing a bit, exiting the function, rendering the UI, entering the next function, rendering, and so on); Oliver Goldman, an engineer on the AIR team, did a presentation on this concept at last year's MAX conference.
Hope it helps!