I've seen this error before, I used to get this error while dealing with data-driven tests that required a lot of test data from an oracle DB in a short space of time.
What's the size of your XML file please? if it's over 20mb, I'd recommend splitting it into two and run the tests seperately. This was the case in free soapUI version. What SoapUI version are you using?
Using ReadyAPI 2.3.0 version, we have around 800+ (165 test passed) scenarios to test in 48 ReadyAPI test suites. We have composite project so all small xml. Getting heap space error during 166th test.