Sasi,
probably I didn't explain clearly. There are three options: (1) you do the logging, (2) let BizTalk trace the message, (3) output a message.
For (1) you are right – it will be in XML form when you get your hands on it in the orchestration.
For (2), what message format is traced, depends on where you switch tracing on. If it's the receive location, it will be before the pipeline and it will be in native format.
For (3), you can create a port on the orchestration and output the message. In the orchestration you will have an XML message, but in the send port you could convert it back into a flat-file. You would need to create a flat-file-send-pipeline with the same flat-file schema in it that you use to convert the incoming file.
John D.