Elements must be created before they can be added to an existing document. Elements are created in the context of a document:

[Xml]$xml = @" 
<?xml version="1.0"?> 
<list type='numbers'> 
<name>1</name> 
</list> 
"@ 
$newElement = $xml.CreateElement('name') 
$newElement.InnerText = 2 
$xml.list.AppendChild($newElement) 

Complex elements may be built up by repeatedly using the Create methods of the XmlDocument (held in the variable, $xml).

If the new node is substantial, it may be easier to treat the new node set as a separate document and merge one into the other.