The reason to use XHTML is simple: high-quality open source tools for processing XML documents exist and work well. You can find good XML processing tools for whatever language/platform you want. High quality SGML processing tools are much less common. I'm willing to take the overhead associated with doing an XHTML to HTML 4.01 conversion as the last step of the process in order to be able to use clean, high-quality, reliable tools for the harder parts.
Beware of hyperbole.
XML + XSLT -> (XHTML, RSS, mail) is a winner.
I don't know - XSLT is rather obscure, and I don't think it is the speediest solution either.