Hi Mike,
You can split XML files into smaller chunks based on a specific tag and then reference the chunks within the <chapter> file.
Are you using a content management tool like Windchill? If so, you can set your bursting rules to split the file based on criteria like a specific tag. Windchill would maintain the relationship between the sub files for you. Multiple authors could check-out the portion they are editing without disrupting the flow of other others.
If you are working from a file system, then you would need too split the files in to chunks manually and reference them into the <chapter>. However, I would recommend a CMS to track where files are used.
Despite the approach, when you open the <chapter> file, you would see the <chapter> in its entirety. The same goes for pub time. Arbortext would assemble the pieces for publishing.
Hope that helps!
-Jeff