The accurate localization of partial insulation defects in cross-linked polyethylene (XLPE) distribution cables is critical for condition-based maintenance in smart power grids. In this study, we developed a frequency-modulated continuous wave (FMCW) diagnostic method that treats the cable as a distributed impedance sensor, enabling noninvasive detection under energized conditions. High-frequency current transformers and high-voltage coupling capacitors provide safe signal injection and extraction. Experiments on an energized 8.7/10 kV YJV cable (copper conductor cable with XLPE insulation and polyvinyl chloride sheath) demonstrate that the FMCW method achieves consistent localization accuracy, with a measured defect at 22.18 m (standard deviation = 0.11 m), which corresponds to a relative error of only 0.82% across 30 repeated trials. Transformer integration reduced the terminal reflection peak amplitude by 7.768%, and the defect-induced reflection peak decreased by only 0.836%, confirming that defect reflections act as independent scattering centers decoupled from boundary perturbations. Localization error remained stable at approximately 5% under both isolated and transformer-coupled conditions. These results indicate the robustness of FMCW sensing against terminal impedance variations and highlight its superiority over conventional reflectometry methods. The results of this study provide a theoretical basis for deploying FMCW-based distributed sensing systems in resilient power distribution networks, enabling the reliable online monitoring of insulation health under practical operating conditions.