ok mate got it working!
<?php
ini_set("allow_url_fopen", "1");
$file = "http://dg.travelnow.com/external/xmlinterface.jsp?cid=66847&xml=<ServiceRequest&20method='getAllRegions'>";
echo $file;
$file = fopen($file, "r");
echo $file;
$file = fread($file, 4096);
echo $file;
exit;
?>
first i removed the urlencode altogether
i got a HTTP/400 Bad Request.
then i noticed a space in the url which was possibly terminating the string early, so i replaced this with %20 (a urlencoded space)
and tada! it works. don't know why that happened
should work on yours too
adam