i went this route without having to hack core or install another module. this solution is good if you just need to insert a limited amount of html. in my case i just wanted to surround the text with an em> tag for styling purposes.
i made a new tpl file to override block.tpl.php in my templates folder and I added in the following:
<div id="<?php print $block_html_id; ?>" class="<?php print $classes; ?>"<?php print $attributes; ?>>
<?php print render($title_prefix); ?>
<?php if ($block->subject): ?>
<h2<?php print $title_attributes; ?>>
$xtitle = preg_replace('/\*\*/', '<em>', $block->subject, 1);
$xtitle = preg_replace('/\*\*/', '</em>', $xtitle, 1);
<?php print render($title_suffix); ?>
<div class="content"<?php print $content_attributes; ?>>
<?php print $content ?>
All I'm doing is just doing a string replacement for * * . Now i can just surround my titles with ** if i want to add the em> tag.