Twin Earth is impossible in this universe. A universe could exist just like ours, except that water is made of a compound of xenon, yttrium, and zing (XeYZn). Furthermore, the laws of physics are such that this chemical acts like water does in ours, and everything else acts just like water in ours. The laws would have to be pretty bizarre, but they could exist.
Is it not clear that the charitable reading of "XYZ" doesn't involve xenon, yttrium, or zinc in particular? I mean, as you point out, that involves two extra letters. I think XYZ were just a sequence of letters chosen to stand in for something not H2O.
Thagard (2012) contains a nicely compact passage on thought experiments: