It is in [my documents]\My Games\GalCiv2\ . btw you can start a game after hacking this file to hell, but don't cheat too much...
CustomPlanets.xml is hackable too. This one is in [GalCiv2 DIR]\Data\English\ .
GalCiv's XML is much easier to hack than Civ4's XML. I'm surprised that the saves aren't XML like Civ4 though
There are CRIME, CABINET, and GOVERMENT tags in this file. What are these traits? Are they fully or 'stealth' discontinued race traits? What do they (or did) do?