semi-newbie question about escaping

The goal here was to output some non-breaking space entities in HTML 
( ) to denote indentation.
So how come this sort of thing works:

   <xsl:choose>
       <xsl:when test='$level=1'>
       <xsl:text> &lt; </xsl:text>
       </xsl:when>
       <xsl:when test='$level=2'>
       <xsl:text> &lt;&lt;   </xsl:text>
       </xsl:when>
   </xsl:choose>

but this doesn't?

    <xsl:choose>
       <xsl:when test='$level=1'>
       <xsl:text disable-output-escaping="yes"> &nbsp; </xsl:text>
       </xsl:when>
       <xsl:when test='$level=2'>
       <xsl:text disable-output-escaping="yes"> &nbsp;&nbsp; </xsl:text>
       </xsl:when>
   </xsl:choose>

I get an error "entity 'nbsp' not found".  I tried all sorts of 
combinations, including not having the <xsl:text> tags at all.  Leaving 
out "disable-output-escaping" also didn't help.  I'm using Xalan, if it 
matters, and my output-method is "html".

I finally got it to do what I wanted, thus:

   <xsl:choose>
       <xsl:when test='$level=1'>
       <xsl:text disable-output-escaping="yes"> &#x26;nbsp;</xsl:text>
       </xsl:when>
       <xsl:when test='$level=2'>
       <xsl:text disable-output-escaping="yes"> 
&#x26;nbsp;&#x26;nbsp;</xsl:text>
       </xsl:when>
   </xsl:choose>

but I'm wondering if there isn't some easier way?  Thanks




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