I AM morbidly curious! =D Thank you for pointing the folder \LaunchBox\Metadata\Temp out, thanks to that, and found some file with no extension that turned out to be the real XML Launchbox uses for importing games.
...and at line 4292731, I found this. "Column 47" is also very misleading here, because the tag is prefixed with two tabs, each counting as one character for launchbox, but as 5 characters for my notepad++...
ThIS is the issue. the value of the "name" attribute is broken, and as a result breaks the entire XML. And this is only visible in LaunchBox's own XML because it's being clever, and imports data from other files that have charsets that are incompatible with the way my system is setup.
The root cause? Well..I'm also playing japanese language video games. For that to work, I have set up my PC a certain way that LaunchBox didn't like.
By going to Control panel > Region > Administrative > Language for non-unicode programes, I have set it up to "Japanes (Japan)". Switching it back to English did the trick, and now launchbox finally could import my MAME fullset!
=> SOLUTION: Go to Control panel > Region > Administrative > Language for non-unicode programs and make sure to select "English (United States)" (this requires a restart of the computer if it was something else before),
lightfox's post in Cannot import MAME 0.285 full set was marked as the answer