Converting simple markdown(string) to html with xslt

Question

I'm transforming my XSLT-stylesheets into documentation, and I want a rich experience within the comment nodes for each code-chunk, therefore I want to convert the following comment and output as xhtml:

String:

# This is a title with __bold__ text and *italic* #
This is just a normal line

- list point with some __bold__
- list point with a "link"[http://www.stackoverflow.com]

Wanted output:

<h1> This is a title with <strong>bold</strong> and <span>italic</span> </h1>
<p>This is a normal line</p>

<ul>
  <li>list point with some <strong>bold</strong></li>
  <li>list point with a <a href="http://www.stackoverflow.com">link</a></li>
</ul>

I tried with a recursive function that uses xsl:analyze-string recursively from a ruleset, but can't find a solution that works really well.

Anyone have done this lately, or is there some frameworks out there that has functions to do this ?

thanx in advance! :)

Edit: Added one dirty example:

<!-- Output comments -->
<xsl:template match="comment()" mode="COMMENT">
    <xsl:copy-of select="ips:groupReplace(normalize-space(.), 
      '
      (.*)(\n|\r)(.*),
      (.*)\*(.*)\*(.*),
      (.*)\*\*(.*)\*\*(.*),
      (.*)__(.*)__(.*), 
      (.*)#(.*)#(.*),
      (.*)-(.*)
      ',
      '
      br,
      span.italic,
      span.bold,
      strong,
      h1,
      li
      ')" />
</xsl:template>

<!-- Initializing the iterateRegex function -->
<xsl:function name="ips:groupReplace">
  <xsl:param name="string" as="xs:string" />
  <xsl:param name="search" />
  <xsl:param name="replace" />
  <xsl:variable name="regex" select="tokenize($search, ',')" />
  <xsl:variable name="replacements" select="tokenize($replace, ',')" />
  <xsl:copy-of select="ips:iterateRegex(count($replacements), $string, $regex, $replacements)" />
</xsl:function>

<!-- Iterate each regex -->
<xsl:function name="ips:iterateRegex">
  <xsl:param name="counter" />
  <xsl:param name="string" />
  <xsl:param name="list_regex" />
  <xsl:param name="list_replace" />
  <xsl:variable name="newStr">
    <xsl:analyze-string select="$string" regex="{normalize-space($list_regex[$counter])}" flags="xm">
      <xsl:matching-substring>
            <xsl:variable name="cc" select="contains($list_replace[$counter], '.')" />
            <xsl:variable name="tag" select="normalize-space(if ($cc) then (substring-before($list_replace[$counter], '.')) else ($list_replace[$counter]))" />
            <xsl:copy-of select="regex-group(1)" />
            <xsl:choose>
              <xsl:when test="normalize-space(regex-group(2)) = ''">
                <xsl:element name="{$tag}" />
              </xsl:when>
              <xsl:otherwise>
                <xsl:element name="{$tag}" >
                  <xsl:if test="$cc">
                    <xsl:attribute name="class" select="substring-after($list_replace[$counter],'.')" />  
                  </xsl:if>
                  <xsl:copy-of select="regex-group(2)" />
                </xsl:element>
              </xsl:otherwise>
            </xsl:choose>
            <xsl:copy-of select="regex-group(3)" />
      </xsl:matching-substring>
      <xsl:non-matching-substring>
        <xsl:copy-of select="." />
      </xsl:non-matching-substring>
    </xsl:analyze-string>
  </xsl:variable>
  <xsl:variable name="count" select="number($counter) - 1" />
  <xsl:choose>
    <xsl:when test="$count &gt; 0">
      <xsl:copy-of select="ips:iterateRegex($count, $newStr, $list_regex, $list_replace)" />      
    </xsl:when>
    <xsl:otherwise>
      <xsl:copy-of select="$newStr" />
    </xsl:otherwise>
  </xsl:choose>
</xsl:function>