Advantages of XSLT:
- Domain-specific to XML, so for example no need to quote literal XML in the output.
- Supports XPath/XQuery, which can be a nice way to query DOMs, in the same way that regular expressions can be a nice way to query strings.
- Functional language.
Disadvantages of XSLT:
- Can be obscenely verbose - you don't have to quote literal XML, which effectively means you do have to quote code. And not in a pretty way. But then again, it's not much worse than your typical SSI.
- Doesn't do certain things which most programmers take for granted. For instance string manipulation can be a chore. This can lead to "unfortunate moments" when novices design code, then frantically search the web for hints how to implement functions they assumed would just be there and didn't give themselves time to write.
- Functional language.
One way to get procedural behaviour, by the way, is to chain multiple transforms together. After each step you have a brand new DOM to work on which reflects the changes in that step. Some XSL processors have extensions to effectively do this in one transform, but I forget the details.
So, if your code is mostly output and not much logic, XSLT can be a very neat way to express it. If there is a lot of logic, but mostly of forms which are built in to XSLT (select all elements which look like blah, and for each one output blah), it's likely to be quite a friendly environment. If you fancy thinking XML-ishly at all times, then give XSLT 2 a go.
Otherwise, I'd say that if your favourite programming language has a good DOM implementation supporting XPath and allowing you to build documents in a useful way, then there are few benefits to using XSLT. Bindings to libxml2 and gdome2 should do nicely, and there's no shame in sticking to general-purpose languages you know well.
Home-grown XML parsers are usually either incomplete (in which case you'll come unstuck some day) or else not much smaller than something you could have got off the shelf (in which case you're probably wasting your time), and give you any number of opportunities to introduce severe security issues around malicious input. Don't write one unless you know exactly what you gain by doing it. Which is not to say you can't write a parser for something simpler than XML as your input format, if you don't need everything that XML offers.