I have PHP configured so that magic quotes are on and register globals are off.
I do my best to always call htmlentities() for anything I am outputing that is derive
I rely on PHPTAL for that.
Unlike Smarty and plain PHP, it escapes all output by default. This is a big win for security, because your site won't become vurnelable if you forget htmlspecialchars()
or |escape
somewhere.
XSS is HTML-specific attack, so HTML output is the right place to prevent it. You should not try pre-filtering data in the database, because you could need to output data to another medium which doesn't accept HTML, but has its own risks.