fo supports this,
7.16.7 "treat-as-word-space"
<fo:character character="&#x2001;" treat-as-word-space="true"/>

Its an 'invisible' space (I think 2001 is very thin space)
If you scattered those alongside the hyphens it would help.

Check your formatter supports this though. xep doesn't as yet,
nor does Antenna house. Unsure about PassiveTex.
So its there, but not usable as yet.

Or does anyone see a better approach?

I think your approach of word splitting at the xslt stage is appropriate,
though what to split on might be difficult.

Question. If tables are proving so difficult, is it essential to have
tables?

Or how about taking the hard to format cells and providing a link to notes
after
the table?