Entity Questions

Hello;

I'm using XSL to output an FO document. I would like to convert some of HTML
tags into their FO counter parts.

To start I just want to handle  

Here is the top of my document:

<?xml version="1.0"?>
<!DOCTYPE xsl:stylesheet [
<!ENTITY nbsp '&#160;'>
]>
<xsl:stylesheet version="1.0"
xmlns:xsl="http://www.w3.org/1999/XSL/Transform"
xmlns:msxsl="urn:schemas-microsoft-com:xslt"
xmlns:fo="http://www.w3.org/1999/XSL/Format" exclude-result-prefixes="fo">

The problem is the &nbsp; is still being outputted by a template in this
style sheet. It should be converted to &#160;, shouldn't it?

What am I doing wrong?

Thanks,
Luke