If pronouncing Xochimilco according to English orthographic conventions is important to you as a matter of principle, then of course you can do it. But it’s a Mexican place name that has a canonical pronunciation that is not difficult for English speakers to approximate, so I can’t really see the point.
(And yes, ʃ does exist in some modern dialects of Spanish, but those aren’t the dialects that would influence the pronunciation of Spanish to English loan words in most cases. The interesting thing is that this was much less obviously the case in the early 1600s. Apparently the exact origin of ‘chocolate’ in Spanish is a bit of a complex historical linguistic puzzle.)