Today I encountered problem with servicemix
Could not parse settings [file:/C:/Documents and Settings/Bartek/.m2/settings.xml]
A quick look at karaf.log revealed the problem
Caused by: com.sun.org.apache.xerces.internal.impl.io.MalformedByteSequenceException: Invalid byte 2 of 4-byte UTF-8 sequence.
So the problem is with BOM (byte order mark) in settings.xml file. Many Windows editors add it at start of an utf encoded files. You should save settings.xml as ordinary utf8 file without BOM.