The trouble here is that you're trying to pass a string value to the XSL processor to be rendered as HTML code, which the processor cannot do natively. There are a few solutions to this, however only a one or two are correct.
If you must keep the format of the output HTML in the database field, then you will need to tell the processor to disable output escaping. This isn't recommended because it can cause either your output or stylesheet to break from lack of well-formedness.
Code:
<xsl:value-of select="Woof" disable-output-escaping="yes" />
The better way to perform this would be to change the field to contain only the path for the image, in this case "\images\fish.jpg" and modify your XSL as:
Code:
<img src="{Woof}" />
or
<xsl:param name="ImgSrc" select="Woof" />
<img src="{$Woof}" />
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