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innerHTML is specced in DOM Parsing and Serialization: http://dvcs.w3.org/hg/innerhtml/raw-file/tip/index.html#widl-Element-innerHTML. The algorithm for getting already does the right thing (thanks to the template spec's addition to the HTML fragment serialization algorithm). But setting needs to modify step 2 to append to HTMLTemplateElement.content if the context element is a template element.
http://dvcs.w3.org/hg/webcomponents/rev/dac95f780623