(obvious) workaround is to change:

  if($name[0] != '&') $name = '&'.$name.';';

into:

  $entity = "&$name;";

further weirdness uncovered with this code;

<?php
  class test {
    function __set($name, $value) {
      $name = $name.$value;
      echo "$name<br>";
    }
  }

  $test = new test;
  $test->kake = 1;
  $test->kake = 2;
  $a = 3;
  $test->kake = $a;
  $a++;
  $test->kake = $a;
  for($a = 0; $a < 10; ++$a)
    $test->kake = $a;
?>

This problem can also be seen in __get

test case:
---------------------

<?php

class Test {

  private $group_id = 1;
  private $group_name = 'test_group';

  public function __get($name) {
    echo "get $name called\n";
    $name = 'group_' . $name;
    return $this->$name;
  }

  public function __set($name, $value) {
    echo "set $name, $value called\n";
    $name = 'group_' . $name;
    $this->$name = $value;
  }
}

$test = new Test();
for ($i=0; $i<2; $i++) {
  echo $test->name . "\n";
  $test->name = $i;
}

?>

Output:
----------------------
get name called
test_group
set name, 0 called

Fatal error:  Cannot access private property Test::$group_name in /var/www/AAF/bug.php on line 23

Expected Output:
-----------------------
get name called
test_group
set name, 0 called
get name called
0
set name, 1 called

What is happening here?
-------------------------
It looks like the 'name' argument in both __get and __set is passed by reference. 
Clearly this should not be happening because it allows code morphing and the error messages are very confusing (eg: Cannot access private property Test::$group_name in /var/www/AAF/bug.php on line 23 <= there is no reference to $group_name on that line .. only to name .. took me a while to figure out what was wrong)

Fixed in CVS (HEAD and PHP_5_0).