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It can become a size issue with large documents, I'll give you that, but it's safer for display purposes that way.
I've never had any display problems using the HTML entities in Netscape 4.X and IE 5 and above as well as Opera and others. It's a recommendation on the Government of Canada and they do testing in text to speech browser, braille ect. so I'm pretty positive that it's the safest way to go. Anybody disagree?
*** hmm, looks like WMW won't let that form be interpretted :(
<meta http-equiv="Content-Type" content="text/html; charset=ISO-8859-1" />
Once you have this (or an equivalent HTTP header sent by the server), you can use your accents just by writing them normally. However, you should make sure that your editing software doesn't use some Windows specific character set for those characters, they really need to be in Latin-1.
If your document is encoded with a different character set that doesn't include the cedille, then you need to use the &entity; spelling.
The most important thing is to make sure that your pages have a character set declared
That's the key.
If you use the named entity for (apmersand, name, semicolon), you can be sure that the user agent will get it right if it understands the HTML version in which the named entity first appeared. This will work with or without a charset declaration.
If you use plain text with accents but don't have a charset declaration, it may or may not render correctly depending on whether or not the user is using the same character set as the one your file is in.
If you declare the charset and the browser is capable of reading that declaration, you'll always get it right. Don't mess up though - you might have one program that saves as UTF-8 and another (probably older program) saving as ISO-8859-1 and you'll get unpredictable results (that's generally true, but pretty much every charset you might use will render standard ASCII characters the same way).
There's a useful page on that gives you pretty much the entire character set in both charsets and some useful notes at Blooberry. It may not be the definitive reference, but it's the only one I could actually understand