Encoding issues with document() function

Hi All
        I am having a xsl in which i use XSLT document() function. The
problem i am facing is that the xml file i am trying to read by using
document() function is having some Unicode characters and the exception
thrown at transformation time is ::

SystemId Unknown; Line #133;Column #104; Can not load requested doc: An
invalid XML character(Unicode: 0x2) was found in the element content of the
document

The source xml file is having encoding UTF-8. I tried to search the web for
this issue and one alternate specified is to replace thos '0x2' character.
Now there can be other characters as well that might come in other scenarios
such as 0x1,0x13 etc. Now my quesstion is is there any encoding that
supports all these characters?

Is there any way out for this issue . Any help will be highly appreciated.

Thanks
Pankaj