I figured this out. When you create the static text object at design time, make sure that it has a word with a different colour or font or something. That will ensure that its value property contains an exData object with contentType="text/html". Now you can change the contents at run time with (I've replaced the angle brackets with {}):
var theXML = "{body xmlns=\"http://www.w3.org/1999/xhtml\" xmlns:xfa=\"http://www.xfa.org/schema/xfa-data/1.0/\" xfa:APIVersion=\"2.5.6290.0\"}{p style=\"text-decoration:none\"}The{span style=\"xfa-spacerun:yes\"} {/span}{span style=\"color:#ff0000\"}quick{/span} brown fox.{/p}{/body}";
StaticText1.value.exData.loadXML(theXML,true);
Jared Langdon
www.jlangdon.ca