Thank you for this bug report. To properly diagnose the problem, we
need a short but complete example script to be able to reproduce
this bug ourselves. 

A proper reproducing script starts with <?php and ends with ?>,
is max. 10-20 lines long and does not require any external 
resources such as databases, etc. If the script requires a 
database to demonstrate the issue, please make sure it creates 
all necessary tables, stored procedures etc.

Please avoid embedding huge scripts into the report.

Since the script is 40 lines long i provided the link (as suggested) I'll write all the links directly:
PHP script source code:
http://virklis.cust.ignum.cz/transformToDoc/test.txt
XSLT Input file (1st argument): 
http://virklis.cust.ignum.cz/transformToDoc/1.xsl
XML Input file (2nd argument):
http://virklis.cust.ignum.cz/transformToDoc/1.xml
DTD:
http://virklis.cust.ignum.cz/transformToDoc/character-entities.dtd

The script is 40 lines long to 
- load the input files
- do the transformation
- determine memory used by php
If it were shorter it wouldn't be complete. The input files are necessary for the problem to arise.

Which libxml2 and libxslt versions are you using? Could you try with the latest ones (if not already used).

I don't think i have libxml or libxslt installed. I use php_xsl.dll bundled with the instalation which in my case says version 5.2.0.0. and that afaik doesn't need libxslt

After some more investigation i found an XML input very similar to the first one but it doesn't trigger the problem. The only diference is that it doesn't contain the HTML content in nodes <content>. I posted the XML on the web, the URL is:
http://virklis.cust.ignum.cz/transformToDoc/2.xml

That is:
1.xml causes the memory problem
2.xml does not cause that problem

Sorry, but your problem does not imply a bug in PHP itself.  For a
list of more appropriate places to ask for help using PHP, please
visit http://www.php.net/support.php as this bug system is not the
appropriate forum for asking support questions.  Due to the volume
of reports we can not explain in detail here why your report is not
a bug.  The support channels will be able to provide an explanation
for you.

Thank you for your interest in PHP.

leak is from libxslt and reproduceable on other platforms and appears to be fixed in their CVS tree.

I don't really think this report should be marked as bogus. I understand well that the problem is not in the PHP source code. But the problem definitely exists in PHP binary (that is php_xsl.dll which links the libxslt library). I also understand that at the moment there is nothing you PHP folks can do about this, but i also think that this report should not be forgotten as invalid.

The fact that it's not a problem of PHP means this report doesn't actually belong here and the problem should be reported to other people.
I.e. bogus.