Despite the libxml2 problems having been solved by the release of PHP 5.2.9 and libxml2 2.7.3 there are still hosts out there who refuse to update their known to be broken setup. This really bummed me out, I didn’t want to include a hack to deal with this in core WordPress.
Just as I was ready to throw in the towel and look at getting a work around into core WordPress Peter Westwood suggested a method that would allow this “fix” to work in a plugin. His idea was spot on and I wrote a small WordPress plugin, LibXML2 Fix, the next day and tested it on a WordPress install with this problem. It fixed the stripped brackets problem for XML-RPC requests, so I’ve submitted it to the plugin directory and it’s now available at http://wordpress.org/extend/plugins/libxml2-fix/.
To be clear, the best way to fix this is to upgrade to PHP 5.2.9+ and libxml2 2.7.3+. But if you are stuck in a hosting situation where that’s not possible then the LibXML2 Fixed plugin will fix XML-RPC requests so that brackets don’t get stripped.
I’ve closed ticket 7771 and will be pointing people to this plugin if they can’t upgrade PHP and libxml2.