Again, here's the stylesheet as it stands:

<?xml version='1.0' encoding='utf-8'?>
<xsl:stylesheet version="1.0"
                 xmlns:xsl="http://www.w3.org/1999/XSL/Transform"
                 xmlns:exsl="http://exslt.org/common"
                 extension-element-prefixes="exsl">
       <xsl:output method="xml" version="1.0" encoding="utf-8"

^^^^^
If you really want the entities outputted as characters, set this to "text"

 <xsl:template match="/ | @* | node()">
   <xsl:copy>
     <xsl:apply-templates select="@* | node()"/>
   </xsl:copy>
 </xsl:template>