Stefano asked me to give my report on the good and the bad. The good is, this is pretty damned good at stopping XSS. It probably won’t stop abuse of styles that position themselves over other people’s content, but it would stop a good deal if not all XSS if implemented properly. That’s the good news (and that’s very good news for most people). Here’s the bad news.
So where would this be useful? Think about all those web2.0 applications out there that have to put dynamic content on the page, don’t have to worry about spiders, robots, and need to make sure that what they output is okay no matter what encoding, or any other craziness that users may put in. I’m not advocating being sloppy, and there may be other issues here that I haven’t found, but thus far, it’s looking like a promising technology.