The reason I recommended to replace with encoding strings was, I did experienced similar issue with IS 6.1
My step after receiving XML document is to convert to String using pub.xml:documentToXMLString and set encoded to ‘true’. But, ‘&’ character still contained in xml string data causing transformation error. So, manually replaced special characters using mentioned procedure.
Hope this answers.
-Siva
#Flow-and-Java-services#Integration-Server-and-ESB#webMethods