>  Compare that to the traditional identity template replacing
> e.g.   with a space!

It doesn't get replaced by a space (character 32) but by a non breaking
space (character 160), every XMl application will treat character 160
the same as   so really nothing is lost here, and if you want to
re-instate references, it's more reliable to use a character map or just
specify an output encoding (such as US-ASCII) that doesn't have the
character.


The stylesheet still fails to parse many XML constructs

<!DOCTYPE x [
<!ENTITY x "x]>">
]>
<x>&x;</x>


is converted to

<!DOCTYPE x [
<!ENTITY x "x]>"?>
]?>
<x>&x;</x>


which is not well formed.

Documents with CDATA sections fail to parse altogether:

 <z>zzz<![CDATA[ <]]></z>


produces:

$ saxon9 id2.xml identity-template.xsl
Error on line 2 column 71 of file:/c:/tmp/identity-template.xsl:
  SXXP0003: Error reported by XML parser: Element type "x4g9m2h5g7v3k991n5n6r" must be
  followed by either attribute specifications, ">" or "/>".
Error at xsl:document on line 172 of file:/c:/tmp/identity-template.xsl:
  org.xml.sax.SAXParseException: Element type "x4g9m2h5g7v3k991n5n6r" must be followed by
  either attribute specifications, ">" or "/>".
Transformation failed: Run-time errors were reported


David