I believe there is a bug in Saxon b8-4.
I have attached a jar file with a makefile, xslt,xml, and extension file.
(I have not attached the jar files being used for size of email reasons.  I could send this  separately if required.)
When I run this with saxonb8-4 there is the following compile time error.
java -classpath "saxon8.jar;saxpath.jar;jaxen-full.jar;xalan.jar;." net.sf.saxon.Transform -o testExtensionOut.xml  test
Extension.xml  testExtension.xsl
Warning: on line 17 of file:/f:/tmp/xsltbug/testExtension.xsl:
  Required item type of @select attribute of xsl:apply-templates is node(); supplied value
  has item type java:org.apache.xpath.NodeSet. The expression can succeed only if the
  supplied value is an empty sequence.
Error on line 17 of file:/f:/tmp/xsltbug/testExtension.xsl:
  XTTE0520: Required type of @select attribute of xsl:apply-templates is node(); supplied
  value has type java:org.apache.xpath.NodeSet
Failed to compile stylesheet. 1 error detected.
This doesnt happen with the previous version of saxon8 (b8-3) and it works in saxon7.
Moreover if I comment out the code which throws the error in 8-4 it works as well.
In the stylesheet we are trying to do to exactly what the saxon 'eval' extension is trying to do. We pass in an xpath to a node, in order to start xslt processing from the node.
(We are going to switch to this but still the potential bug identified stands.)


Philip Tomlinson
Telecom Solutions Centre
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