You're defaulting to html output. Set the output to xhtml: 
<xsl:stylesheet version="1.0" 
        xmlns:xsl="http://www.w3.org/1999/XSL/Transform" 
        xmlns="http://www.w3.org/1999/xhtml">
  <xsl:output method="xml" 
  doctype-public="-//W3C//DTD XHTML 1.0 Strict//EN"  
doctype-system="http://www.w3.org/TR/xhtml1/DTD/xhtml1-strict.dtd"
  indent="yes"/>

[download]

-derby

In reply to Re: XML::LibXSLT generates invalid XHTML by derby
in thread XML::LibXSLT generates invalid XHTML by Ovid

Title:
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and:  <code> code here </code>
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