2 looks very nice as I can use it in many places. I just don't
understand - how does the node-set() function come into play (in my
case it would be the ms extensions)?

  For 2/, you have to use you prefered xx:node-set() extension or XSLT
2.0.  You then create the template rules that make the escaping, in a
particular mode:

    <xsl:template match="*" mode="serialize">
      <xsl:text>&_lt;</xsl:text>
      <xsl:value-of select="name()"/>
      <xsl:apply-templates select="@*" mode="serialize"/>
      <xsl:text>&_gt;</xsl:text>
      <xsl:apply-templates select="node()" mode="serialize"/>
      <xsl:text>&_lt;/</xsl:text>
      <xsl:value-of select="name()"/>
      <xsl:text>&_gt;</xsl:text>
    </xsl:template>

Thanks a lot,
--
Jan
www.limpens.com