Firstly, disable-output-escaping doesn't always work: processors aren't obliged to support it, and most processors will ignore it if you aren't serializing the output of the transformation. So we need to know more about the environment in which you are running.
However, if d-o-e isn't working, that wouldn't explain your output.
I'm afraid as so often happens, the conclusion is that the problem lies in the part of the application that you haven't shown us.
Michael Kay
http://www.saxonica.com/
Author, XSLT Programmer's Reference and XPath 2.0 Programmer's Reference