I am working on an existing product that has wired ethernet port. But when product is installed in end customer application, they want WiFi connectivity. Do to the nature of the product (high power electrical), I cannot bring any electrical connection out of the box other than an antenna (which is isolated).

So what I am doing is trying to attach a Digi International XBee WiFi module to a serial port on the system, and then route the IP traffic over that serial port.

The XBee device simply takes the serial stream and encapsulates it into IP packets and sends them over the wifi to the associated AP. The reverse when receiving. The XBee gets it's IP address from DHCP of the AP.

Has anyone done anything like this? Any ideas?

Yes, I've done something like this, but not serial. No idea what existing product you're working on, but if it already has an existing ethernet port, doing this over serial to wifi is going to add layers of complexity/problems to it. And it sounds like you're in an industrial setting...meaning that you'll need support/maintenance in the field that needs to be fairly easy.

Look for a wifi adapter that supports client mode, like this:
https://www.amazon.com/dp/B00TQEX8BO...v_ov_lig_dp_it

Have used them before to do EXACTLY what you're doing. You configure this little gadget to use DHCP (or static, whatever), and plug it into the wired ethernet port. Done. It comes up, grabs an address, and you're on the air, using the existing wired ethernet. As a bonus, it can be powered via USB; no external adapter needed. Did this for my Smartthings hub at the house, and at a few different client sites where the hardware wouldn't support wifi out of the box.

Cheap, easy to configure, and you can just send them out if they break. Swap units, and you're back in business.