Well doing XSLT with XML -> XML transformation in the browser is problematic unless the browser knows to render the resulting XML (as for instance Mozilla or Opera can do with XHTML or SVG).
But Mozilla certainly does not support disable-output-escaping at it does not serialize the result tree.
With IE you could script the transformation with MSXML and then I think with transformNode you should have support for disable-output-escaping.
So which browser do you use? Do you script the transformation or do you simply use an xml-stylesheet processing instruction letting the browser handle everything? In the latter case I don't think you will get any meaningful result displayed, whether disable-output-escaping is supported or not, as browsers do not know how to render SOAP messages.
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Martin Honnen
Microsoft MVP (XML, Data Platform Development) 2005/04 - 2013/03
My blog
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