>The next process requires the entities to appear as "#192;" etc.
One of the benefits of XML is that if your XML is well-formed and your XML parser is conformant, then the parser will be able to process the document. If you're going to use a non-conformant parser to process the XML, then you might as well not bother using XML at all.
>why is it passing "?" to the output file?
You haven't shown any evidence, but my suspicion is that you've got your character encodings in a twist somewhere and you're trying to display a character that's miscoded in some way.
Author, XSLT Programmer's Reference and XPath 2.0 Programmer's Reference