Yes, this works as long as the MLT XML clip is transparent:
In order for a MLT XML clip to be transparent, it must have defined a non-opaque alpha channel (use Alpha Channel: View filter to visualize, but remove it when done). Also, it must be a single clip project (no playlist or timeline, only use Source player), or if a timeline no multiple video track blending where you want to have transparency. IOW the clip with non-opaque alpha channel can be on any video track, but there should be nothing on any other visible video tracks in the time regions where you want transparency.
In my example above, mlt xml clip with transparency.mlt is simply a PNG with alpha on Timeline V1 by itself.