diff --git a/NEWS b/NEWS
index 3079dac0..62ca2790 100644
--- a/NEWS
+++ b/NEWS
@@ -1,3 +1,5 @@
+    - fixed issue with php executing in literal blocks (Monte)
+
 Version 1.3.0
 -------------
     - moved license from GPL to LGPL (Monte)
diff --git a/README b/README
index 50bcee42..9587d2b6 100644
--- a/README
+++ b/README
@@ -55,8 +55,9 @@ DESCRIPTION:
     * it is possible to imbed PHP code right in your template files,
       although not recommended and doubtfully needed since the engine
       is so customizable.
+    * built in caching
 
 COPYRIGHT:
     Copyright (c) 2001 ispi of Lincoln, Inc. All rights reserved.
-    This software is released under the GNU General Public License.
+    This software is released under the GNU Lesser General Public License.
     Please read the disclaimer at the top of the Smarty.class.php file.
diff --git a/Smarty.class.php b/Smarty.class.php
index 57468560..1daa5b3a 100644
--- a/Smarty.class.php
+++ b/Smarty.class.php
@@ -85,8 +85,7 @@ class Smarty
 
 
     var $custom_funcs    =  array(  'html_options'      => 'smarty_func_html_options',
-                                    'html_select_date'  => 'smarty_func_html_select_date',
-                                    'header'            => 'smarty_func_header'
+                                    'html_select_date'  => 'smarty_func_html_select_date'
                                  );
     
     var $custom_mods     =  array(  'lower'         => 'strtolower',
@@ -683,7 +682,7 @@ class Smarty
             case 'literal':
                 list (,$literal_block) = each($this->_literal_blocks);
                 $this->_current_line_no += substr_count($literal_block, "\n");
-                return $literal_block;
+                return "<?php echo '".str_replace("'","\'",$literal_block)."'; ?>\n";
 
             case 'insert':
                 return $this->_compile_insert_tag($tag_args);
diff --git a/demo/templates/index.tpl b/demo/templates/index.tpl
index dacfb8c6..f1a1b496 100644
--- a/demo/templates/index.tpl
+++ b/demo/templates/index.tpl
@@ -16,11 +16,11 @@ hello, my name is {$Name|upper}
 
 My interests are:
 {section name=outer loop=$FirstName}
-	{if %outer.index% is odd by 2}
-		{%outer.rownum%} . {$outer/FirstName} {$outer/LastName}
-	{else}
-		{%outer.rownum%} * {$outer/FirstName} {$outer/LastName}
-	{/if}
+{if %outer.index% is odd by 2}
+	{%outer.rownum%} . {$outer/FirstName} {$outer/LastName}
+{else}
+	{%outer.rownum%} * {$outer/FirstName} {$outer/LastName}
+{/if}
 {sectionelse}
 	none
 {/section}
diff --git a/docs.sgml b/docs.sgml
index be82cd6b..e2f25357 100644
--- a/docs.sgml
+++ b/docs.sgml
@@ -189,9 +189,9 @@
         not have the CGI version of PHP available and you are concerned about
         world-writable directory access, you can chmod 777 the compile_dir, let
         the templates compile once as the web server user, then change the
-        directory mode back to 700. If you are using the caching feature of
-        Smarty, the cache directory must always have write access for the web
-        server user.
+        directory mode to 755. If you are using the caching feature of Smarty,
+        the cache directory must always have write access for the web server
+        user.
         </para>
         <para>
         TECHNICAL NOTE: If you do not have access to the php.ini file, you can
diff --git a/libs/Smarty.class.php b/libs/Smarty.class.php
index 57468560..1daa5b3a 100644
--- a/libs/Smarty.class.php
+++ b/libs/Smarty.class.php
@@ -85,8 +85,7 @@ class Smarty
 
 
     var $custom_funcs    =  array(  'html_options'      => 'smarty_func_html_options',
-                                    'html_select_date'  => 'smarty_func_html_select_date',
-                                    'header'            => 'smarty_func_header'
+                                    'html_select_date'  => 'smarty_func_html_select_date'
                                  );
     
     var $custom_mods     =  array(  'lower'         => 'strtolower',
@@ -683,7 +682,7 @@ class Smarty
             case 'literal':
                 list (,$literal_block) = each($this->_literal_blocks);
                 $this->_current_line_no += substr_count($literal_block, "\n");
-                return $literal_block;
+                return "<?php echo '".str_replace("'","\'",$literal_block)."'; ?>\n";
 
             case 'insert':
                 return $this->_compile_insert_tag($tag_args);
diff --git a/templates/index.tpl b/templates/index.tpl
index dacfb8c6..f1a1b496 100644
--- a/templates/index.tpl
+++ b/templates/index.tpl
@@ -16,11 +16,11 @@ hello, my name is {$Name|upper}
 
 My interests are:
 {section name=outer loop=$FirstName}
-	{if %outer.index% is odd by 2}
-		{%outer.rownum%} . {$outer/FirstName} {$outer/LastName}
-	{else}
-		{%outer.rownum%} * {$outer/FirstName} {$outer/LastName}
-	{/if}
+{if %outer.index% is odd by 2}
+	{%outer.rownum%} . {$outer/FirstName} {$outer/LastName}
+{else}
+	{%outer.rownum%} * {$outer/FirstName} {$outer/LastName}
+{/if}
 {sectionelse}
 	none
 {/section}