I'm considering UBB code for the simple formatting needs that my clients may
use when updating active content on my websites.  Would I write a template
that could correctly translate the UBB code into valid HTML tags, or am I
way off on this concept?

(for everybody wondering, UBB is one of the many variants of "simplified
HTML" used in web based bullentin boards, see for example
 http://france.expats.tv/data/ultimatebb.php?ubb=ubb_code_page)

The problem is that you can't match UBB code with XSLT templates, you need
to parse a text string. It's not too hard to do a one-to-one translation
from UBB into possibly malformed HTML, using d-o-e and the usual recursive
string replace template. But if you want to deal with stray brackets and
do some validation, you're probably much better off with another tool
than XSLT 1.0. Most likely you'll find ready-to-use Perl, PHP or Java code
in one of the open source BBs and Wikis. Search FreshMeat.