First:

$ cat test1.svg [http://www.gnome.org/~chpe/testcases/test1.svg]
<?xml version="1.0" encoding="UTF-8" standalone="no"?>
<!DOCTYPE svg PUBLIC "-//W3C//DTD SVG 1.1//EN" "http://www.w3org/Graphics/SVG/1.1/DTD/svg11.dtd" [
    <!ENTITY mytext "Hello">
  ]>
<svg xmlns="http://www.w3.org/2000/svg" width="20mm" height="20mm">
  <g>
    <text x="10" y="10">&mytext;</text>
  </g>
</svg>

$ rsvg-view test1.svg
Shows the expected result, with the text being "Hello".

Now this:

$ cat test2.svg [http://www.gnome.org/~chpe/testcases/test2.svg]
<?xml version="1.0" encoding="UTF-8" standalone="no"?>
<!DOCTYPE svg PUBLIC "-//W3C//DTD SVG 1.1//EN" "http://www.w3org/Graphics/SVG/1.1/DTD/svg11.dtd" [
    <!ENTITY % mydecls SYSTEM "test2.dtd">
    %mydecls;
  ]>
<svg xmlns="http://www.w3.org/2000/svg" width="20mm" height="20mm">
  <g>
    <text x="10" y="10">&mytext;</text>
  </g>
</svg>

$ cat test2.dtd [http://www.gnome.org/~chpe/testcases/test2.dtd]
<!ENTITY mytext "Hello">

$ xmllint test2.svg && echo valid
<?xml version="1.0" encoding="UTF-8" standalone="no"?>
<!DOCTYPE svg PUBLIC "-//W3C//DTD SVG 1.1//EN" "http://www.w3org/Graphics/SVG/1.1/DTD/svg11.dtd" [
<!ENTITY % mydecls SYSTEM "test2.dtd">
<!ENTITY mytext "Hello">
]>
<svg xmlns="http://www.w3.org/2000/svg" width="20mm" height="20mm">
  <g>
    <text x="10" y="10">&mytext;</text>
  </g>
</svg>
valid

So this is valid XML. However:

$ rsvg-view test2.svg
Error displaying image: Error domain 1 code 27 on line 8 column 23 of file:///opt/source/_git/librsvg/testcases-chpe/test2.svg: Entity 'mytext' not defined

(That means domain=XML_FROM_PARSER, code=XML_WAR_UNDECLARED_ENTITY)

Inkscape loads & displays test2.svg just fine (doesn't write back the entities though when saving).