I've now got to the bottom of this, it is a bug, now registered as #506218 - see http://sourceforge.net/tracker/index.php?func=detail&aid=506218&group_id=29872&atid=397617
I've done a source fix; until that gets into a release I'm afraid I can't think of any workaround that doesn't involve changing the imported stylesheet modules. If you want to try applying the source fix, it's simply to add the line
if (redundant) return;
as the first line of the process() method in com.icl.saxon.style.XSLParam.