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using System.Xml;  
using System.Xml.Xsl;

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public static string ConvertXML(XmlDocument InputXMLDocument, string XSLTFilePath  
, XsltArgumentList XSLTArgs)  
{  
   System.IO.StringWriter sw = new System.IO.StringWriter();  
   XslCompiledTransform xslTrans = new XslCompiledTransform();  
   xslTrans.Load(XSLTFilePath);  
   xslTrans.Transform(InputXMLDocument.CreateNavigator(), XSLTArgs, sw);  
   return sw.ToString();  
}

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<?xml version="1.0" encoding="utf-8" ?>
<sexystars>
  <category name="Bollywood">
    <sexystar name="Antra mali" />
    <sexystar name="Deepika Padukone" />
    <sexystar name="Mandira Bedi" />
  </category>
  <category name="Hollywood">
    <sexystar name="Jennifer Lopez" />
    <sexystar name="Jessica Alba" />
  </category>
</sexystars>

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<?xml version="1.0" encoding="UTF-8" ?>
<xsl:stylesheet version="1.0" xmlns:xsl="http://www.w3.org/1999/XSL/Transform">
<xsl:output omit-xml-declaration="yes"/>
  <xsl:template match="sexystars">
    <div>
      <xsl:apply-templates select="category" />
    </div>
  </xsl:template>
  <xsl:template match="category">
    <h2>
      <xsl:value-of select="@name"/>
    </h2>
    <ul>
      <xsl:apply-templates select="sexystar" />
    </ul>
  </xsl:template>
  <xsl:template match="sexystar">
    <li>
      <xsl:value-of select="@name"/>
    </li>
  </xsl:template>
</xsl:stylesheet>

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XmlDocument xDoc=new XmlDocument();  
xDoc.Load(@"C:\sample.xml");  
string returnhtml = ConvertXML(xDoc, @"C:\sample.xslt", new XsltArgumentList());

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<div>
<h2>Bollywood</h2>
  <ul>
    <li>Antra mali</li>
    <li>Deepika Padukone</li>
    <li>Mandira Bedi</li>
  </ul>
<h2>Hollywood</h2>
  <ul>
    <li>Jennifer Lopez</li>
    <li>Jessica Alba</li>
  </ul>
</div>