>I am using the JAXP XSLT processor
JAXP is an interface, not a processor. There are several XSLT processors that implement the JAXP interface, including Xalan, Saxon, and Oracle.
translate() works in terms of Unicode codepoints. The encoding of your input and output files (including your stylesheet) are irrelevant. The codepoint for middle dot is xB7, so you just need translate($input, '&_#xb7;', '') (omitting the "_" which is just to confuse the mailer).
Michael Kay
http://www.saxonica.com/
Author, XSLT Programmer's Reference and XPath 2.0 Programmer's Reference