Step 1: Concept The projection of a vector $\vec{A} = x\hat{i} + y\hat{j} + z\hat{k}$ in the XY plane is $x\hat{i} + y\hat{j}$.
Step 2: Meaning The "length in the XY plane" refers to the magnitude of this projection, ignoring the $z$ component.
Step 3: Analysis For the vector $(3\hat{i} + \hat{j} + 2\hat{k})$, the components in the XY plane are $x=3$ and $y=1$. Magnitude = $\sqrt{x^{2} + y^{2}}$.
Step 4: Conclusion Magnitude = $\sqrt{3^{2} + 1^{2}} = \sqrt{9 + 1} = \sqrt{10}$.
Final Answer: (C)