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The options dialog is available from the "Options..." item under the "View" menu.
The options dialog allows you to configure the text colors used in each type of node as well as the font used and the background color. A drop down arrow on each color lets you pick from different color palettes. You can also cusomtize the font that is used in the Microsoft XML Notepad tree view.
You can also configure the formatting options that are used when you save an XML file, or turn off formatting altogether.
You can also use this dialog to configure the auto-update mechanism. If the "Enable updates" field is true, then Microsoft XML Notepad will ping the specified "Update Location" for an "Updates.xml" file to see if a new version of Microsoft XML Notepad is available. See Updates for more information on how this works.