You called xsl:apply-templates. That processes the children of the context node. There's no explicit template that matches the children, the default template fires. This cascades its way all down the tree. The default template for text nodes is to copy the text to the output. If you don't want to process the child nodes, don't call apply-templates.
Michael Kay
http://www.saxonica.com/
Author, XSLT Programmer's Reference and XPath 2.0 Programmer's Reference