According to the latest feature matrix, you'll need to get Saxon EE or EE-T if you want to do this purely with XSLT. Search on "streaming facilities."
XML documents processed into DOMs are really big. 10, or even 20 times the amount of RAM as the original input document would be reasonable.
If you don't have EE or EE-T, or if you are just looking for a challenge, you can use SAX or one of the push parsers (e.g., XPP) to perform an initial stream of the large document to break it into small chunks.
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From: Mark Rubelmann [firstname.lastname@example.org]
Sent: Saturday, February 25, 2012 8:15 AM
Subject: [saxon] Running out of memory
I'm *hoping* to process some big XML files with XSLT but Saxon is throwing an out of memory exception when the input is only around 350 or 400 mb. I understand that XSLT needs to have the whole input tree in memory but I don't understand why it's failing
with such a [relatively] small input. Is the loaded tree like 10x bigger than the source XML? Is there anything I can do to alleviate the problem? I don't have a really solid requirement yet but I'd feel a lot better if it could handle two gigs.