<xsl:template match="indexterm">
   <indexterm>
    old[<xsl:value-of select=".)"/>]
    new[<xsl:value-of select="translate(.,'&#x20;','&#x26;')"/>]
  </indexterm>
 </xsl:template>

SystemId Unknown; Line #20; Column #37; XSLT Error (javax.xml.transform.Transfor
merConfigurationException): javax.xml.transform.TransformerException: javax.xml.
transform.TransformerException: Extra illegal tokens: ')'

Thanks,
Mark

> > >  <xsl:template match="indexterm">
> > >     <indexterm>
> > >        <xsl:value-of select="translate(.,'&#x20;','&#x26;')"/>
> > >     </indexterm>
> > >  </xsl:template>
> > >

are you sure that that template is ever being executed?, add
<xsl:message>I am here</xsl:message>
or change it to

<xsl:template match="indexterm">
     <indexterm>
      old[<xsl:value-of select=".)"/>]
      new[<xsl:value-of select="translate(.,'&#x20;','&#x26;')"/>]
    </indexterm>

it may be that a higher priority template is being executed, or it's a
namespace issuee, or....

David