That is right CFS2 doesn't support XML.
The gauges folder contains .gau files. There are two sorts, FS98/CFS1 style single gauge files and CFS2/FS2K style multiple gauge files. The later sort are mouseable in flatpanel view.
These sort of Gauges are the same thing as windows dll files. They are program code with embedded bitmaps. There is an SDK for building FS2k2 panels and gauges that contains the required headers and some technical documents. You need several years to learn C programming to make any use of it.
The good news is that It is possible to extract the bitmaps and embed new ones,
so if you can find a gauge that has an identical movement you can exchange the bitmaps with those you find in the CAB file that contain the XML gauges.
Collect a library of gauges, you can rebuild panels using suitable gauges from your stock.