> No the other Sub system does not use XSLT

The point they are trying to make is that provided the other 'Sub
system' is a compiant XML parser, then anything produced by a transform
using the xml output method should parse ok.

If the parsing is failing at the other end, then it's a problem with the
parser and a fix should be applied there rather than bodging your output
to a work around the non-comformity.

What characters made the parsing at the other end fail?  It could be
that you are mis-using disable-output-escaping?