> The vendor that I am submitting these XML files to requires entities  
> because there are math equations and similar items that can't be  
> represented using ASCII. In the layout application, we use a special  
> font to generate these items. So whenever they are used within the  
> content of the file, we need to change them to the appropriate  
> entity. That being said, is there a better way other than manually  
> going through my XML file and changing those characters to their  
> correct entity code?

Nothing there suggests the need for entities in the XSLT output.
If you have an entity reference  & f o o b a r ; in the file and that
entity is defined by a DTD to be __something__ then when your vendor
processes the XMl file, the XML parser will (or should) report the same
thing whether the file has & f o o b a r ; or __something__  in it.
An entity reference is indistinguishable from the direct use of the
entity which it references.

If the vendor tools require an ASCII encoded file taht's a different
matter and can be addressed by 
<xsl:output encoding="US-ASCII"/>

David