Let us know how it goes - using XSLT that way is often desirable from a developer's point of view, but is usually impractical due to the processing overhead. If you end up successfully using this technique in production without complaints from users please let the list know, I'm sure a few other people are curious too!
Just a personal opinion: wouldn't xslt juice out the cpu faster than a conventional template engine (eg. HTML::Template)? If you are running a fairly high-use environment, you may want to implement stuff that is easy on the processor.

Thinking aloud though, perhaps if the xslt engine caches the compiled xslt file, performance may improve...

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