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(1) The docs say:
xml_declaration controls if an XML declaration should be added to the file. Use False for never, True for always, None for only if not US-ASCII or UTF-8 or Unicode (default is None). 
The method also accepts other values, like xml_declaration = "yes". This behavior should be documented, or raise a ValueError (up to effbot, I think)
(2) The docs say (in a note):
The encoding string included in XML output should conform to the appropriate standards. For example, "UTF-8" is valid, but "UTF8" is not. See http://www.w3.org/
But the method accepts both values, ("UTF-8" and "UTF8"). Since this will result in invalid xml, (but not invalid python) it should probably raise ValueError too.
(3) Open issue 9458 also refers to this method. It might be wise to raise ValueError if the encoding does not match the (mode of the) file target (binary or text).

About (1):
It's customary for Python to accept "truthful" values (like non-empty strings) as True. I see no harm in that. Strict type-checking to boolean True in each and every place is not necessary.
About (2):
Similarly, this isn't productive. ET may not know about all encodings underlying the system. The warning is clearly documented - it's up for the user to make sure it's valid.