I just ran into this RSS title encoding problem myself. I choose to double encode the title elements. Meaning encode your HTML first then do the XML entity encoding. Unfortunately the RSS 2.0 spec won't help you; because it doesn't say what it can or can't be. I don't allow HTML to be included in any of our RSS title elements. However, I do allow basic characters such as &, < etc… to be included in the title element.
So when I encode the following:
It will look like this in the RSS document.
BTW, FireFox and IE Readers don't support double encoding. As RSS readers they suck anyways so why support them? Maybe they will change there evil ways.