I started using XSLT about a year ago and had exactly the same initial reaction - it looks ugly and verbose, it's difficult to debug, and badly written code is almost impossible to understand.

A (difficult!) year of daily use behind me, I've found that all the above problems disappear. People come to XSLT expecting a procedural DSL for modifying an XML file which they can pick up in a day or two, and very quickly their code spirals out of control as they try to twist XSLT into what they expect. It very clearly isn't a procedural language, which is why I think it gets labelled as functional, because it doesn't accurately fit either model.

Once you develop good code style and know the pitfalls to avoid, it's perfectly pleasant to use. It's also significantly easier to get along with if you use a full blown XSLT IDE like oXygen, which allows you to breakpoint, see the call stack, and trace back which template generated a specific part of the output.