hi liz,
i believe your sablotron installation is fine. write a <?php phpinfo(); ?> and check if you find a 'sablot' section. if so, your system is configured properly. from how you are describing you installation steps, sablotron should be working.
i guess your problem is: for php >= 4.03 the command to create a new xslt processor has changed: try xslt_create() instead of xslt_create_processor() ...
plus make sure to read php's xslt documentation (http://www.php.net/xslt) to stay up to date with the current commands. they clearly say there that xslt support is still experimental, so there might me more changes.
but don't worry, sablot is working nicely on my box, which is almost the same setup as yours.
just make sure to use sablot.dll v0.7 or above (i got it from gingerall.com); the version that came with php4.0.6 caused some probs on win boxes.
hope this helps,
phil!