> I discovered the problem, although I 
> can't find it 
> documented anywhere. It seems that when you create variables 
> containing 
> strings, you have to use two sets of quotes around them.

This is a well-known gotcha. There's even an example of the mistake in the
XSLT 1.0 spec:

<xsl:param name="lang" select="en"/>

Michael Kay
http://www.saxonica.com/