The problem is actually the browser, not the xml. Wrap in pre tags seem to be obsolete in post 4.0 browsers, something style should be able to help with.
Take a look at thread215-300776 more discussions on this problem.
The only other way to do it would be to put the tag in cdata tags, but you wont be able to treat it like a node in xml...
eg
<![CDATA[<pre wrap>]]><xsl:value-of select="foo"/> <![CDATA[[</pre>]]>
not a good solution.
Matt