Sorry for the late answer. Let me cite the "Introducing XslCompiledTransform"
article:
Respecting xsl

utput: OutputSettings property
If a client application uses a Transform overload that takes an XmlWriter as
the output object, XslCompiledTransform ignores all xsl

utput settings
specified in the stylesheet. In this case the client is responsible for
output serialization. It may control serialization process by either passing
a custom implementation of XmlWriter or adjusting the properties of the
standard XmlTextWriter. If the client needs to know serialization settings
specified in the stylesheet, it may obtain them through the
XslCompiledTransform.OutputSettings property. Suppose, for example, that the
client needs to turn character checking off, but respect other xsl

utput
settings. It may use the following code to achieve that:
// Load the stylesheet
XslCompiledTransform xslt = new XslCompiledTransform();
xslt.Load("MyStylesheet.xsl");
// Clone its output settings and turn character checking off
XmlWriterSettings ws = xslt.OutputSettings.Clone();
ws.CheckCharacters = false;
// Run the transformation with changed output settings
xslt.Transform("MyDocument.xml", XmlWriter.Create(Console.Out, ws));