Implementing the Direct Approach

The server examines the document requested and depending on its location, either looks up the appropriate style sheet to apply, applies some default sheet, and returns the transformed XML.

Off-the-shelf Kits

Apache Cocoon

http://xml.apache.org/cocoon/
Cocoon is a servlet which plugs into any 2.0 servlet architecture

AxKit

http://axkit.org
AxKit is a Perl module for use with ModPerl under Apache
Supports Sablotron XSLT processor's Perl wrapper
And Perl XPath module

XSLISAPI.dll

http://msdn.microsoft.com/Downloads/webtechnology/xml/xslisapi.asp
XSLISAPI installs as a filter in your management console

Setting Up

Specifying the path on the server to deliver docs from depends on the kit you use

XSLISAPI.dll -- the filter will reroute any XML file
Cocoon -- you specify the server paths for which the servlet will respond

Specifying a style sheet

An XML processing instruction of the form: <?xml-stylesheet type="text/xsl" href="somestylesheet.xsl"?> is the canonical method for associating an XSLT style sheet with a document. All the server-side direct translation approaches use this 'hook.'
http://web3.w3.org/TR/xml-stylesheet/

Additional Features: Microsoft XSLISAPI

Microsoft's XSLISAPI supports an additional value in the style sheet processing directive:

<?xml-stylesheet type="text/xsl" server-config="myConfig.xml" href="clientSS.xsl" ?>

Where myConfig.xml is a file containing directives of two sorts:

Doctype -- governs the style sheet applied on the basis of the document's doctype
Device -- governs the style sheet applied on the basis of the user agent making the request.
example code
It can also chain style sheets together, and allows you to use Parsed ASP pages to generate XML dynamically.
example code
However, before you use this as a general solution, you should be sure you are running the most recent version of the MSXML dynamic link library.

Suggested Readings

Microsoft Documentation
http://msdn.microsoft.com/Downloads/webtechnology/xml/xslisapi.asp
The 'unofficial MSXML faq'
http://www.netcrucible.com/xslt/msxml-faq.htm

Additional Features: Cocoon

Cocoon supports a similar set of features. The cocoon.properties file allows you to set by device style sheets to apply.
Cocoon supports a mechanism to pass parameters from the request.

Tiptree Award Example

Source XML file lists works published in 1999 considered for the Tiptree Award. They may fall into three groups: the winner(s), the short list, and the long list
works.xml
The style sheet for this XML file has a top level parameter corresponding to the list in which we're interested.
works.xsl
It's then possible to construct a simple web interface to the lists.
http://honeybomb.dhs.org:81/cocoon/tiptree/index.html
Cocoon also supports Cold Fusion-esque tag libraries. But that's another course.