This works for me (output attached):<br><br>
<style type="text/css">p, li { white-space: pre-wrap; }</style>
<p style="margin: 0px; text-indent: 0px;">\documentclass[10pt,titlepage]{book}</p>
<p style="margin: 0px; text-indent: 0px;">\usepackage{xltxtra}</p>
<p style="margin: 0px; text-indent: 0px;">\usepackage{polyglossia}</p>
<p style="margin: 0px; text-indent: 0px;"></p>
<p style="margin: 0px; text-indent: 0px;">\setmainfont{Charis SIL}</p>
<p style="margin: 0px; text-indent: 0px;">\defaultfontfeatures{Mapping=tex-text}</p>
<p style="margin: 0px; text-indent: 0px;"></p>
<p style="margin: 0px; text-indent: 0px;">\newfontfamily\textsanskrit[Script=Devanagari,Mapping=RomDev]{Sahadeva}</p>
<p style="margin: 0px; text-indent: 0px;"></p>
<p style="margin: 0px; text-indent: 0px;">\begin{document}</p>
<p style="margin: 0px; text-indent: 0px;">Hello world!</p>
<p style="margin: 0px; text-indent: 0px;"></p>
<p style="margin: 0px; text-indent: 0px;">\textsanskrit{astyuttarasyāṃ diśi devatātmā\par himālayo nāma nagādhirājaḥ}</p>
<p style="margin: 0px; text-indent: 0px;"></p>
<p style="margin: 0px; text-indent: 0px;">\end{document}</p><br><br>But I think there's another point.  You've gone through some trouble to convert Velthuis to UTF8.  But if, in the \newfontfamily statement you said "Mapping=velthuis-sanskrit" then the Velthuis encoding itself can give perfectly good Nagari output.<br>

<br>E.g.,<br><p style="margin: 0px; text-indent: 0px;">\newfontfamily\textsanskrit[Script=Devanagari,Mapping=velthuis-sanskrit]{Sahadeva}</p>

<p style="margin: 0px; text-indent: 0px;">\begin{document}</p>
<p style="margin: 0px; text-indent: 0px;">Hello world!</p>

<p style="margin: 0px; text-indent: 0px;">\textsanskrit{astyuttarasyaa.m di"si devataatmaa\par himaalayo naama nagaadhiraaja.h}</p>

<p style="margin: 0px; text-indent: 0px;">\end{document}</p><br><br>Best,<br>Dominik<br clear="all"><br>