I am not quite sure if you want to convert the HTML decimal encoding in place or do a transformation from HTML to an XML document. Converting the decimal (or hexadecimal) encoded characters to UTF-8/16 is not too difficult. However, properly parsing HTML in the wild can be a challenge (see this thread). 
Here is a naive class for converting decimal and hexadecimal encoded characters in place and returning a .Net string (I make no guarantees about its correctness or robustness - particularly if you are trying to use it against malformed HTML or have surrogate pair characters):
using System;
using System.Collections.Generic;
using System.Globalization;
using System.Text.RegularExpressions;
namespace HtmlEncodingConverter
{
    internal static class HtmlEncoding
    {
    private static readonly Regex EncodedCharRegex = new Regex(@"&#[X]?[0-9|A-F]{1,12};",
                                                               RegexOptions.Compiled |
                                                               RegexOptions.IgnoreCase |
                                                               RegexOptions.CultureInvariant);
    public static string ToUtfCharacters(string input)
    {
        return ConvertInnerText(input, ReplaceWithCharacter);
    }
    private static string ReplaceWithCharacter(string original)
    {
        return EncodedCharRegex.Replace(original, new MatchEvaluator(DecodeCharacter));
    }
    private static string DecodeCharacter(Match match)
    {
        string digits = match.ToString().TrimStart(new[] {'#', '&'}).TrimEnd(';').ToUpperInvariant();
        return digits.StartsWith("X") ? HexToString(digits) : DecToString(digits);
    }
    private static string DecToString(string digits)
    {
        return ((char) int.Parse(digits)).ToString();
    }
    private static string HexToString(string digits)
    {
        return ((char) int.Parse(
            digits.Substring(1), 
            NumberStyles.HexNumber, 
            CultureInfo.InvariantCulture)).ToString();
    }
    private static string ConvertInnerText(string original, Func<string, string> converter)
    {
        var convertedQueue = new Queue<char>(original.Length);
        var innerQueue = new Queue<char>();
        int tagCount = 0;
        bool hasFoundHtml = false;
        foreach (char character in original)
        {
            if (character.Equals('<'))
            {
                hasFoundHtml = true;
                if (tagCount == 0 && innerQueue.Count > 0)
                {
                    var innerString = new string(innerQueue.ToArray());
                    string convertedString = converter.Invoke(innerString);
                    foreach (char convertedCharacter in convertedString)
                    {
                        convertedQueue.Enqueue(convertedCharacter);
                    }
                    innerQueue.Clear();
                }
                tagCount += 1;
                convertedQueue.Enqueue(character);
                continue;
            }
            if (character.Equals('>'))
            {
                tagCount -= 1;
                convertedQueue.Enqueue(character);
                continue;
            }
            if (tagCount == 0 && hasFoundHtml)
            {
                innerQueue.Enqueue(character);
            }
            else
            {
                convertedQueue.Enqueue(character);
            }
        }
        return new string(convertedQueue.ToArray());
    }
}
}