I too have this problem, although with XML::Simple rather than
XML::Twig.  I simplified dtrusty's test case down to:

- - - 8< - - - 8< - - -
#!/usr/bin/perl
use strict;
use XML::Twig;

my $twig = XML::Twig->new(twig_handlers => {
    x => sub {
      my ($twig, $x) = @_;
      $x->xml_text;
      return;   # Just to point out that the return value doesn't matter.
    },
  });
$twig->parse("<xml><x>ap &lt; &lt; &lt;</x><x>&lt; ö</x></xml>");
print "XML::Twig ok\n";
- - - 8< - - - 8< - - -

$ ./parse.pl
Assertion rx->sublen >= (s - rx->subbeg) + i failed: file "regcomp.c",
line 5098 at /usr/lib/perl5/vendor_perl/5.10.0/XML/Twig.pm line 7806.
 at ./parse.pl line 12

Twig.pm:7806 is:

 $string=~ s/([&<])/$XML::Twig::base_ent{$1}/g unless( $keep_encoding ||
$elt->{asis});

Versions:
perl-5.10.0-56.fc10.i386
perl-XML-Twig-3.32-1.fc9.noarch

(My own crash has too much code and data to easily cut down.)