I think the way to do this is to create an XML file with the same format as the XML you're retrieving, then import that as an XML file secondary data source and use that as the source for your dropdown.
Then when you call your web service, just copy the XML you receive into that data source and replace its contents. No need to convert it into an array first.
And just FYI, InfoPath 2010 has built-in functionality for querying REST web services, if that's what you're using.