Visual Studio 2010 Config Transformations TransformXml task failure

So I got a little bit inspired the other day after watching Scott Hanselman’s Web Deployment Made Awesome: If You're Using XCopy, You're Doing It Wrong from MIX10. With a perfect candidate ASP.NET 3.5 web app and VS2010 RC I dived in and generated Web.Release.config and Web.Debug.config files then went to publish. Unfortunately it didn’t all go to plan and all I got was this particularly uninformative error:

The "TransformXml" task failed unexpectedly.
System.UriFormatException: Invalid URI: The URI is empty.
   at System.Uri.CreateThis(String uri, Boolean dontEscape, UriKind uriKind)
   at System.Uri..ctor(String uriString)
   at Microsoft.Web.Publishing.Tasks.TransformXml.Execute()
   at Microsoft.Build.BackEnd.TaskExecutionHost.Microsoft.Build.BackEnd.ITaskExecutionHost.Execute()
   at Microsoft.Build.BackEnd.TaskBuilder.ExecuteInstantiatedTask(ITaskExecutionHost taskExecutionHost, TaskLoggingContext taskLoggingContext, TaskHost taskHost, ItemBucket bucket, TaskExecutionMode howToExecuteTask, Boolean& taskResult)

After much toing and froing I discovered that converting the project to .NET 4 then back to .NET 3.5 solved the problem. Intrigued, I investigated further and found the root cause in an appSetting entry (values changed in this post for obvious reasons):

<appSettings>
  <add key="ServiceAccountUsername" value="domain\username" />
  <add key="ServiceAccountPassword" value="doLW0&gt;`dsP1&gt;%!a" />
</appSettings>

A quick diff against the head source control copy showed the “>” symbol had been escaped to “>”. Reverting this change immediately caused the publish process to fail again. Password changed, problem solved.
I could find absolutely zero information on the web about this error message in the context of config transformations so hopefully this post will save someone else some pain one day.