The XML parser that comes built in to JDK 1.6 (a modified version of Xerces) sometimes rejects an ill-formed XML source document without notifying the SAX ErrorHandler. The parser simply throws an Exception. Saxon assumes that the error has been properly reported, and exits with the uninformative message "One or more errors were reported".
A patch is being raised in Subversion (in the 9.1 branch) to ensure that if the XML parser throws an exception without having notified the ErrorHandler of any errors, the exception will be logged by Saxon.
In the example encountered, the message is not very informative: "Error reported by XML parser processing file:/C:/data.xml: Scanner State 24 not Recognized", but it's better than nothing.
NOTE: Saxonica does not recommend use of this parser. It appears to be generally of poor quality. The version of Xerces distributed by Apache is far better.