Normally I'd want a secure parser to allocate memory with a bound, and one way to implement that is to give each parse call an allocator that fails once it reaches a limit. From a very basic scan it seems like libxml2 supports swapping its allocator function, so it could do this; although that's probably not the intended purpose since those APIs are global rather than per parser instance.

I bet what happened here is the reporter ran a fuzzer, found a report, and didn't realize that the fuzzer configuration was injecting faults into malloc so they thought it was more severe than it actually was. Missing a bounds check often results in some massive number being passed to malloc, which then returns null, so this is a common pattern to find. It's not a high severity security bug but it's reasonable to think it could be one if you didn't know about the fault injecting allocator.

EDIT: That said, I'm on the maintainer's side here.