Pádraic Brady has a new post to his blog about the state of output escaping in PHP and the steps that need to be taken to help prevent and protect applications from the real threat of cross-site scripting.
Automatic escaping has a certain appeal given its goal of removing the need to type escape() all over your templates. Funny thing, though, is that this is basically its one and only advantage. The second claimed goal is to remove a factor of human error (i.e. forgetting to type escape() somewhere), however, this hasn't posed an issue for me in the past where simple analysis of templates can quickly locate such omissions. And no, using automatic escaping does not remove the need to analyse templates for security issues - that's still needed regardless.
He goes on to define what "automatic escaping" is and isn't and how it relates to the context of the information (the same data may not always be filtered the same way in every place). He talks about scope-limited escaping, context-aware escaping and an idea that could help make life easier - a content security policy defining how the client should behave when interpreting HTML.