When you dissolve the foam, the gas that expanded it is released. I understand that XPS has closed cells, so the original gas is still there.
At least two families of gas are used, one being a fluorocarbon and possibly chlorofluorocarbon. It shouldn't make you sick, but it's a greenhouse gas and also an ozone layer destroyer. And if it gets in a flame, some of the new compounds are unhealthy.
Well, I suppose nearly all extruded polystyrene foam ends up releasing its gas in the atmosphere, whether in your workshop or elsewhere.