I've found an issue with the dialog and XHTML compliance. ThrushAAX was kind enough to point out in #jquery-ui that if you don't have the title option set when working with a page properly served up as application/xhtml+xml that the dialog will cause an error. The exact error within Firefox is as follows:

Error: undefined entity Source File: Line: 1, Column: 43 Source Code: <div xmlns=" http://www.w3.org/1999/xhtml">&nbsp;</

Error: uncaught exception: [Exception... "Component returned failure code: 0x80004003 (NS_ERROR_INVALID_POINTER) [nsIDOMNSHTMLElement.innerHTML]" nsresult: "0x80004003 (NS_ERROR_INVALID_POINTER)" location: "JS frame ::  http://localhost/res/js/jquery/jquery-1.3.2.min.js :: anonymous :: line 12" data: no]

Line 38 in jquery.ui.dialog.js is the immediate offender. The simple fix is to replace instances of '&nbsp;' in the script to '&#160;'. &nbsp; is an invalid xml entity, and &#160; is the code replacement, and is recognized in all browsers

Full conversation:  http://groups.google.com/group/jquery-ui-dev/browse_thread/thread/baf677570ec9eefc/b55a74c0705b4fce?lnk=gst&q=xhtml#b55a74c0705b4fce