I'm developing a plugin (using Rainlab Builder) for a client who requires some basic markup (bold & underline) in backend form field labels. I've tried basic html (<b>,<u>), markdown and converting html entities (in the lang.php file). However, the html is always rendered as plain text. Is there any way to accomplish this?

You can't do it this way. What I suggest doing is inject a css file asset to the controller showing that form, and target the form label elements to add font-weight/text-decoration css properties:

div.form-widget div.form-group > label {
   font-weight: bold;
   text-decoration: underline;
}

Hi, thank you, but the client specifically wants to emphasize specific words in the label, not the full label.

I'm afraid that's not possible without modifying the core source code.