>Is it possible to have a base xml file include (<!ENTITY...) another xml
>file which in turn includes another xml file?

If A includes B which includes C, both B and C's entity declarations have to
be in A's doctype declaration (an internal one between square brackets or an
external one referenced by the system identifier "filename.ext" in
"<!DOCTYPE whatever SYSTEM "filename.ext">). An entity reference to C can
then be in B or in A. 

Bob DuCharme          www.snee.com/bob           <bob@  
snee.com>  "The elements be kind to thee, and make thy
spirits all of comfort!" Anthony and Cleopatra, III ii


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