Okay, if I understand you correctly, 

CASE 1) Fails because the DTD requirements are not met due to 
        sticking in text in the wrong place. There is no
        mystery here and I only illustrated that IE clearly
        understands that this is TEXT, and NOT a tag.

CASE 2) The DTD is changed to allow text. However the style sheets
        processor does not treat the string of characters as text,
        but rather treats it like a tag. My thought was that the
        DTD process and the style-sheets process were not treating
        this string of characters "<UNB01>yes</UNB01>"
        in the same way. 

Now, as a result of your posting, I understand that the DTD
processing replaces the < and > symbols
prior to passing the XML document to the style-sheet processor
for rendering. I.E. the style-sheet processor only sees:
<UNB01>yes</UNB01>

Now that I think about it, it only makes sense to replace
general entity references with entity values
prior to passing the document to 
ANY process indicated in a PI. (processing instruction)
including <?xml-stylesheet ... ?>.

Thanks for clearing this up for me.

> 
> I guess my question for you would be why you are doing this type of
> thing?
> 

My program will be processing XML that other people wrote
and looking for specific tags, extracting things like 
sender-id and receiver-id and passing the rest through. 
So, if I come across this type of thing, I must know how
to deal with it. 

Mike



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