[Lunatixz]

In which directory should I place my XMLTV file or do I simply point PTV to it via
the gui "LiveTV -> XMLTV location" ?

Do I then just leave

Code:

<setting id="Channel_8_3" value="epg" />

My XML file is called epg.xml and I placed it in the same folder as the settings2.xml file is in.

Yeah, Setup the path to include the XMLTV file location, then make sure _3 switch is using the file name without .xml.

So in your case C:\epg.xml would be:
Path in settings: C:\
Switch _3: value="epg"

Any suggestions on how I could improve xmltv setup let me know...

BTW I am planning to add function to auto build LiveTV from XBMC's backend. It will feature channel manager setup, including hopefully xmltv selection. This will remove manual configurations, but... it won't be added till final build.