jQuery dialog prints HTML-Tags under WordPress

It’s sort of a longshot, but maybe try something like this:

$('#button-setup-league').click(function() 
{
$( "#dialog p" ).html('<span>'+wpslm_v_script_vars.delete_league+'</span>');
            $( "#dialog" ).dialog({ 
                modal: true
            });
});

This, of course, requires “#dialog p” to be initially empty, or assumes that its contents can be replaced entirely. If not, maybe you can use the solution above but with a more specific selector (i.e. “#dialog p span.insert_after”, or maybe $(“#dialog p”).last() or something; hard to say without actual code).