First off, thanks for the XHTML-Fixup plugin. We gave our best.
The problem of recoding " " etc. is that it's hard to find a full list of all entities, and that getting the list via html_trans_table on PHP is hard on the performance. So it's really hard to strip out those "invalid" entities that look like valid entities.
I committed your fix to the weather plugin!
BTW, blockquote is already the default quote button in Serendipity versions, I believe since 1.0 or 1.1.
As to the well-formedness: It's still very easy for users to introduce "not wellformed code". Even though you prefer to have such code show up in the browser as an error, most users see it a bit different: They want to see what they write, no matter what they write. They would say "Fuck serendipity, it's a mess" when the whole page did not render because of an error they made.
And even though we put much work in the xhtmlfixup plugin, we can't ensure that it fixes the many things that users can enter. It's near to impossible for a PHP application within the strict performance boundaries to wade through all user input and try to parse it fior well-formedness. Many PHP applications I know have tried to validate user input, but I've never seen a bulletproof working thing.
Even the W3C has made a step back, they are now moving towards HTML5 / XHTML5, which breaks with the XML-conformace on well-formedness. And guess why: They saw it didn't work out.
User-input is flawed. We need to face that. Even though advanced users might be pedantic about those errors, and they might want to have a perfectly validating content, we cannot do that to normal users. And Serendipity is all about making normal users AND advanced users happy.
Advanced users can emit a xhtml+xml header very easily using a php s9y plugin, or puttin gthe header() call in the index.php or template's config.inc.php file. So advanced users can have that content-type without a real problem.
But we'll not have it as a s9y default, at least not with current implementations and fatal browser bailouts.