I found that

lexh.startDTD "MyDTD", "", "http://eureka.sample/mydtd.dtd"
lexh.endDTD

causing the problems.

The following does work - but how to add the dtd?
Private Sub text_xml()
    Dim cnth As IVBSAXContentHandler
    Dim dtdh As IVBSAXDTDHandler
    Dim lexh As IVBSAXLexicalHandler
    Dim dech As IVBSAXDeclHandler
    Dim errh As IVBSAXErrorHandler


    Dim atrs As New SAXAttributes30
    Dim rdr As New SAXXMLReader30
    Dim wrt As New MXXMLWriter30


    Dim xmlDoc As New MSXML2.DOMDocument30
    xmlDoc.validateOnParse =3D False

    ' wrt.output =3D xmlDoc
    wrt.Encoding =3D "UTF-8"
    wrt.indent =3D True
    wrt.omitXMLDeclaration =3D False

    Set cnth =3D wrt
    Set dtdh =3D wrt
    Set lexh =3D wrt
    Set dech =3D wrt
    Set errh =3D wrt

    cnth.startDocument
    ' lexh.startDTD "MyDTD", "", "http://eureka.sample/mydtd.dtd"
    ' lexh.endDTD
    atrs.addAttribute "", "", "cover", "", "hard"
    atrs.Clear
    cnth.startElement "", "", "book", atrs
    atrs.Clear
    cnth.startElement "", "", "title", atrs
    cnth.Characters "Some special characters: =E4=C4=F6=D6=FC=DC=DF"
    cnth.endElement "", "", "title"
    cnth.endElement "", "", "book"
    cnth.endDocument
    wrt.flush

    MsgBox wrt.output
    xmlDoc.loadXML (wrt.output)
    MsgBox xmlDoc.xml
   =20
    xmlDoc.Save ("c:\sample.xml")
End Sub