How can I insert
Into an XSLT stylesheet, I keep getting this error:
XML Parsing
Use the entity code   instead.
is a HTML "character entity reference". There is no named entity for non-breaking space in XML, so you use the code  .
Wikipedia includes a list of XML and HTML entities, and you can see that there are only 5 "predefined entities" in XML, but HTML has over 200. I'll also point over to Creating a space ( ) in XSL which has excellent answers.
One can also do this :
<xsl:text disable-output-escaping="yes"><![CDATA[ ]]></xsl:text>
I was trying to display borders on an empty cell in an HTML table. My old trick of using non-breaking space in empty cells was not working from xslt. I used line break with the same effect. I mention this just in case the reason you were trying to use the non-breaking space was to give some content to an 'empty' table cell in order to turn on the cell borders.
<br/>
XSLT stylesheets must be well-formed XML. Since " " is not one of the five predefined XML entities, it cannot be directly included in the stylesheet.
So coming back to your solution " " is a perfect replacement of " " you should use.
Example:
<xsl:value-of select="$txtFName"/> <xsl:value-of select="$txtLName"/>
you can also use:
<xsl:value-of select="'&nbsp'"/>
remember the amp after the & or you will get an error message
  works really well. However, it will display one of those strange characters in ANSI encoding. <xsl:text> worked best for me.
<xsl:text> </xsl:text>