If you have set xsl:output method="text" then Saxon will not escape special characters and will not output an XML declaration. I can only speculate that either (a) you xsl:output declaration is wrong (you haven't shown it), or (b) you're not using the Saxon serializer - perhaps you're sending the output to a DOM and serializing that with the DOM serializer. Wild guesses, I know, but with so little information one has to speculate.
Michael Kay
http://www.saxonica.com/
Author, XSLT Programmer's Reference and XPath 2.0 Programmer's Reference