Almost there....
So now you know what to to with the first part of the file, what’s to be done to complete it?
Compare a bit more...
Just below here is part of the contents of the template index.xml file. Underneath it, the output from the Domain.sites.
How to build YOUR OWN template in iWeb - OLD style
There’s extra stuff there!
That’s right. If you compare all the open/close tags between the two, a number of extra “open” tags were in the part you just replaced earlier.
So here you need to delete the section from part-nodes until the line above document.
And don’t forget the last line:  
to rename document to template...!!
 
That’s it. So now you know. Or at least know where to start. Have fun experimenting!
And please, DO share what you find out.
 
HOW DO YOU BUILD A NEW TEMPLATE?
(NOTE: iWeb 1.1.1 has a slightly changed format of the Templates info.plist file)

Step 1
Locate the Domain.sites file (package). It’s in your
~/Library/Application Support/iWeb folder.
This contains all the pages of your site. Move it out of the way to a back-up folder.

Step 2
Create a new set of templates from the style you would like to base your site on. The procedure on the left is the quickest way.

Note: The “Developer Tools” from Apple contain a program called Plist editor, which makes it easy to edit the Templatesinfo.plist file.
Note2: If you open TextEdit and then from the File menu open an .xml file it can handle it? Have a look at the TextEdit Preferences and have a look at the filetypes you can use to save.... 

Step 3
Ensure you have all pictures etcetera placed in the package of the page you want to redesign. 
I.e.: they’re placed in the “MyNew About Me.webtemplate”. This is crucial, otherwise it won’t work.
Your last chance to keep out... and avoid developing a headache ;-)

Step 8
Quit iWeb and locate the Domain.sites file (package). It’s in your ~/Library/Application Support/iWeb folder.
Move it out to a save location, for example “Your About Me Folder”.

Step 9
Open the package and you’ll find contents matching your “Your About Me.webtemplate” folder.
This includes the index.xml.gz file, it’s there too. This is your “nugget of gold”. This file contains all the settings you made to your page. Only one drawback: it’s not ready to be used as a template again. It’s the file iWeb generates your site from. And it differs from a template-file

Step 10
Unzip the index.xml.gz file. Double-clicking goes, Gzipper can do this etc. Gzipper can also recompress to .gz in the end. Make a backup.

Step 11
Choose your editor you’re going to work in.
Could be any editor capable of displaying the contents of the index.xml files.
By example:
BBedit Lite
Taco HTML Edit
or whatever you prefer. I’ve used BBedit in my first attempts to dig around in XML and to make it readable for myself. Later on I used Taco. It’s “organise tags” and coloring functions are very useful to me. Without it, things would have been much harder to analyse. (Although TextEdit does do it’s share.)
Step 4
All is set. The pictures are in the approriate folder (package), the folder is open in the Finder and there’s NO Domain.sites in the iWeb folder. Start iWeb.

Step 5
Choose the page you want to modfify and become your new template. You do this with ONE page only. Not more. The whole process works only with ONE page at the time.

Step 6
Modify everything you want on that page. Fontsizes, fonts, colors, width, header height etc. There’s not much you can’t do in this stage.
Putting in pictures is special: you can only drag&drop them in from the .webtemplate folder. Otherwise your new template will not work properly and cannot find the files where it expects them to be.

Step 7
Save your file and quit iWeb. Publishing is not neccesary. Now the hacking can begin. Editting XML that is.
 
Step 12
Copy the index.xml.gz file from your .webtemplate to a save location. Maybe name it something like “Orgindex.xml.gz”. Unzip it.

Step 13
Open both the Orgindex.xml from your template and the index.xml you retrieved from your Domain.sites.

Step 14
Start comparing the first section and note the differences. And at the end of the file. These are the places where you need to modify your index.xml so it looks like a template again.
Some details are on the next pages.
Step 15
After all modifications, save. Then recompress the index.xml file

Step 16
Copy the index.xml.gz file to your .webtemplate folder.

Step 17
Open iWeb and create a new page based on modified “Your About Me” webtemplate. You should see a new page, layed out exactly as you created it. Cool!

Note:
If it’s not showing what you expect it to show... you most likely made a mistake somewhere with deleting stuff. Start over from your backup file :-) 
If you get an error message along the lines of “it is no template file” or something else, you overlooked something which should or shouldn’t have been removed.
 
The code.
Here it gets “ugly”. The top picture contains the first lines of code of the original index.xml file, extracted from the White About Me.webtemplate. Below is the code from the Domain.sites index.xml file. They differ!
Yep. Line 1, line 2, line 5, line... etc.
Some lines are the same, others only differ by a “0” or a “1”.

I’ve tried to selectively replace one part with another, everytime trying when it starts to work as a template again. A bit tedious. I found there’s a simple approach as well. The trick is that everything above the stylesheet definition is wat’s different between the template and the site.
In the template file, just select the part of xml ranging from the start of the file up to the line above the stylesheet definition and copy it. This we can call the “header”. Where the Stylesheets start, there’s the content of your page. Then in the index.xml that comes from your Domain.sites, paste it in so it replaces the part up to the line avove the stylesheet. That part is done with. Now we move the end of the file....
 
NOTE: There’s an entry here called BLMetaDataBrowserBackgroundColor. Guess what that does if you replace it with a full color setting in there? Indeed, it does change the backgroundcolor. I’ve tried to find out if there was an option to get a background-picture. No luck. Whatever I tried, it didn’t give the required result. Digging into the code of iWeb itself, there wasn’t a recognisable chunk that gave a hint on how to achieve it either.
 
Above here is part of the contents of the template index.xml file.
Below is the output from the Domain.sites.
 
Old style. BEFORE there was Site2Template. Before things could be done easier. This is still here for educational purposes!