I got the XSL translations working yesterday, and modified to better accommodate whatever random bits of HTML might be included in the themed page fragments. Works like a charm.
I've got the main menu of CAREO (and all of it's included components) modified to use the new XML format, and have UCRepositoryCore checking all components for the XML fragment, and cacheing the result of the transformation for later use.
It's a LOT faster than running the transformations on the fly (it can take almost a second to transform a big component into HTML + WOD on my TiBook, but after it's cached, it's almost instantaneous).
Now, I need to finish XML-ifying the rest of the components in the site, and build a front-end for adding/modifying the XML fragments. This will probably be a separate application that also triggers the transformation on modified XML fragments so the results are pre-cached for CAREO when needed.