wiki:KidHTMLEntities
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Until a proper way to do it hits svn you can disable output encoding in kid for some html tags.

from kid import serialization
serialization.HTMLSerializer.noescape_elements.add('div')

Then in your template you dont need to use XML() anymore.

<div py:content="yourvariable"/>

If you want to insert your entity in a tag in the template source you must enclose it with cdata :

<div><![CDATA[&nbsp;]]></div>