Applies to:

Microsoft Office SharePoint Portal Server 2003 (SPS 2003)
Windows SharePoint Services v2 (WSS v2)

probably applies as well to ASP.NET applications with similar problem (web.config xml malformed)

Problem:
When trying to access a SharePoint site settings ( /_layouts/2070/settings.aspx (if your SharePoint is in English), or /_layouts/2070/settings.aspx (if your SharePoint is in Portuguese), etc.) and get the following error:

«An error occurred while parsing EntityName. Line 6, position 50.»

Cause:
This error was caused by a «&» char on a custom webapp's Web.config stored under the LAYOUTS/2070/LPUtilities folder:

<?xml version="1.0" encoding="utf-8"?>
<configuration>
    <appSettings>
        <add key="LearningPortalUtilities.edsps.CSDataServiceEx" value="http://www.example.com/CsWebApp/dataservice2/service.asmx"/>
        <add key="PDApproverUsername" value="someUser"></add>
        <add key="PDApproverPassword" value="some&password"></add>
        <add key="PDApproverDomain" value="DOMAIN"></add>
        <add key="LearningPortalUtilities.edu.demo.portal.Lists" value="http://www.example.com/_vti_bin/lists.asmx" />
    </appSettings>
</configuration>

While parsing this file, when the «&» char was hit, an exception was thrown with the error message mentioned above.

Solution:
The «&» char must be substituted with a Html Entity:

<?xml version="1.0" encoding="utf-8"?>
<configuration>
    <appSettings>
        <add key="LearningPortalUtilities.edsps.CSDataServiceEx" value="http://www.example.com/CsWebApp/dataservice2/service.asmx" />
        <add key="PDApproverUsername" value="someUser"></add>
        <add key="PDApproverPassword" value="some&amp;password"></add>
        <add key="PDApproverDomain" value="DOMAIN"></add>
        <add key="LearningPortalUtilities.edu.demo.portal.Lists" value="http://www.example.com/_vti_bin/lists.asmx" />
    </appSettings>
</configuration>

Hope this helps someone out there.