XSLT 2.0 is much stronger for string manipulation, as it supports regular expressions.
In 1.0 you have to make do with functions such as substring-before, concat, etc. But you can do quite a lot with them, especially if used with recursive templates.
Michael Kay
http://www.saxonica.com/
Author, XSLT Programmer's Reference and XPath 2.0 Programmer's Reference