output escaping (i just dont get it)

I found the "solution" to my question in this old thread,
http://www.biglist.com/lists/xsl-list/archives/200008/threads.html#00389

but i still dont quite understand what's going on here.  

The scenario:
my template rule is
<h2><xsl:value-of select="$heading"/></h2>
where $heading is an external parameter being passed into the transformer
(xalan).

when heading == "This & That"
the output is <h2>This &amp; That</h2>
	and
when heading == "This &amp; That"
the output is <h2>This &amp;amp; That</h2>

So my real question is, why is the & 'legal' when passed as an external
parameter, when it would obviously be illegal as an internal param, ie:
<xsl:param name="heading">This & That</xsl:param> ??

I would have thought that all 'input' strings would have to be well-formed
for the transformation to take place.  

And why is the & automaticaly converted to &amp; in this situation, but not
others?

Anyway, to get the result that i wanted, i changed the rule as follows:
<h2><xsl:value-of select="$heading" disable-output-escaping="yes"/></h2>
so
when heading == "This &amp; That"
the output is <h2>This &amp; That</h2>

So now i am REQUIRED to use '&amp;' in the param, because '&' throws the
well-formedness error i was expecting all along.

I just dont get WHY...





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