We want the XHTML pre elements to have a border, background, and for the formatting to remain.

Certain properties of [fo:]block enable this.

One way to do this:

<xsl:template match="h:pre">
<fo:block 
   font-family="monospace" 
   font-size="12pt"
   white-space-treatment="preserve" 
   white-space-collapse="false" 
   linefeed-treatment="preserve" 
   wrap-option="no-wrap"
   background-color="rgb(220,220,220)"
   border-color="gray"
   border-width="1pt"
   border-style="solid"
   padding="5pt"
   space-before="5pt"
   space-after="5pt"
>
<xsl:apply-templates/>
</fo:block>
</xsl:template>