I’ve used XeTeX to produce PDF’s of translated Buddhist texts with Sanskrit names and terms.
While there is much overlap between glyphs used for Pali and Sanskrit transliteration, there are some fonts that will work well for Pali, that may not work as well for Sanskrit, due to differences in which glyphs are used.
Most fonts do not have full support for all the characters. Some that seem like they have support, actually only have partial support. It’s fairly typical, for example, that authors of open-source type fonts will auto-generate Latin Extended glyphs in FontForge, but often the diacritics are not aligned correctly with the base glyph. Sometimes you will not know until you see all the combinations of characters, cases, and font faces.
Examples of fonts with incorrect / incomplete support: Junicode, Crimson Pro, FreeSerif.
The font family that sticks out in my mind most for its excellent compatibility is Gentium. I would recommend that font family to anyone. Their support has been correct and comprehensive for 10+ years.
Along with that, EB Garamond has made great strides and is now likely suitable for use for texts that require IAST. I’m not currently seeing any glyphs with incorrect diacritic placement.