Rearrange this function to be better organized and more correct:

* the error codes were changed from the incorrect INVALID_ARG to
  XML_ERROR

* prefix still isn't required, but if present it must be valid or an
  error will be logged.

* don't emit a debug log just because prefix is missing - this
  is valid.

* group everything related to setting prefix in one place rather than
  scattered through the function.