> #### LibXSLT (1.1.22) to the rescue!
> 
> $ xsltproc ascii.xsl ascii-soll-es-werden.xml
> 
> <?xml version="1.0" encoding="us-ascii"?> <Urmel>
>          <Vorspeise>S&#252;&#223;kirschen mit 
> K&#228;seso&#223;e</Vorspeise>
>          <&#220;belkeit/>
> </Urmel>
> 
> So is LibXSLT preferable in this respect? Or would I be 
> justified reporting this as a bug?
> 

Since it has produced output that isn't well-formed XML, yes, you can report
it as a bug.

(By the way, do any of the SGML historians on the list know why character
references are not allowed in element and attribute names? I expect the
reason is just the usual one that committees are far more stupid than their
individual members.)

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