I have to agree with Dmitry and confirm. I am having the same problem with the very fresh checkout of MOODLE_18_STABLE:
$~/public_html/moodle-18-stable$ cvs update
The function is not defined in any file, it is just used. See:
$~/public_html/moodle-18-stable$ grep -R libxml_use_internal_errors *
lib/xmldb/classes/XMLDBFile.class.php: libxml_use_internal_errors(true);
I receive an Error! XML parsing failed: syntax error (Line: 133, Character: 0) Error:unexpected end-of-file during an site upgrade:
http://localhost/~mudrd8mz/moodle-18-stable/admin/index.php?confirmgroupupgrade=yes
probably because of calling die() - see the end of source code of the page:
<div class="notifytiny" style="text-align:center">Index groupingid-groupid do not exist. Delete skipped<ul style="text-align: left"><li>line 1109 of lib/ddllib.php: call to debugging()</li><li>line 257 of group/db/upgrade.php: call to drop_index()</li><li>line 420 of group/db/upgrade.php: call to groups_drop_keys_indexes_db()</li><li>line 115 of group/db/upgrade.php: call to xmldb_group_upgrade()</li><li>line 407 of admin/index.php: call to upgrade_group_db()</li></ul></div><br />
<br />
<b>Fatal error</b>: Call to undefined function libxml_use_internal_errors() in <b>/home/mudrd8mz/public_html/moodle-18-stable/lib/xmldb/classes/XMLDBFile.class.php</b> on line <b>79</b><br />
Can you please report where the function libxml_use_internal_errors() is supposed to be defined?
Nick can you try an install from scratch (rename your config.php and view the moodle site to verify if this is happening for you, if not close it, it might be missing files on the reporter's site).