Microsoft says that the performance of XslTransform in beta 1 is NOT indicative of its final performance and that performance will be greatly improved in beta 2. They also intend to do additional perf-testing and tuning post-beta 2. Their goal is to deliver MSXML.dll-like performance in the shipping version of XslTransform.
The really good news is that they’re keenly aware of the perf problems and are working diligently to fix them. I heard a couple of weeks ago that the person who wrote MSXML.dll version 4 is now working on XslTransform. If so, that’s great news!