No, it happens in both cases.  I attempted an Apply Transformation Scenario and received a heap space overflow exception.  I submitted the problem report that oXygen offered, so details can be found in that report. 
 
Todd Gochenour
On Thu, Mar 15, 2012 at 3:18 AM, George Cristian Bina <george@oxygenxml.com> wrote:
Just to clarify: this happens only when the execution is started in the
oXygen XSLT debugger. Otherwise, if a transformation scenario is
configured and the transformation is invoked using the "Apply
transformation scenario" action then the streaming mode will work.

Best Regards,
George
--
George Cristian Bina
<oXygen/> XML Editor, Schema Editor and XSLT Editor/Debugger
http://www.oxygenxml.com

On 3/14/12 11:55 AM, Michael Kay wrote:
> An update on this: oXygen compiles the XSLT code with a Saxon option set
> that inserts debugging/trace code into the compiled stylesheet. This
> code is preventing the optimizations that cause streaming to work. I
> will work with the oXygen people to try and find a way around this.
>
> Michael Kay
> Saxonica
>
>
> On 12/03/2012 14:59, Todd Gochenour wrote:
>> I'm running with oXygen Developer version 13.2 with Saxon-EE 9.3.0.5.
>> There is no timing option in the configuration dialog page. My code is
>> as follows:
>>
>> <?xml version="1.0" encoding="UTF-8"?>
>>
>>
>> <xsl:stylesheetversion="2.1"
>> xmlns:xsl="http://www.w3.org/1999/XSL/Transform"
>> xmlns:saxon="http://saxon.sf.net/"
>> xmlns:xsi="http://dummy.instance.net/"
>> xmlns:xs="http://dummy.schema.net/"
>> >
>>
>> <xsl:templatematch="/">
>> <xsl:for-eachselect="saxon:stream(doc('test7.xml')/*/*/table_data)">
>> <xsl:variablename="table-name"select="@name"/>
>> <xsl:variablename="collection-uri"select="concat('db/',parent::*/@name,'/',$table-name)"/>
>> <xsl:for-eachselect="row">
>> <xsl:variablename="record">
>> <xsl:elementname="{$table-name}">
>> <xsl:for-eachselect="field[@name]">
>> <xsl:elementname="{if(number(substring(@name,1,1))=number(substring(@name,1,1)))
>> then concat('_',@name) else @name}">
>> <xsl:value-ofselect="text()"/>
>> </xsl:element>
>> </xsl:for-each>
>> </xsl:element>
>> </xsl:variable>
>> <xsl:variablename="id"select="if($record/*/id) then
>> concat('id-',$record/*/id) else concat('ndx-',position())"/>
>> <xsl:result-documenthref="{$collection-uri}/{$id}.xml">
>> <xsl:copy-ofselect="$record"/>
>> </xsl:result-document>
>> </xsl:for-each>
>> </xsl:for-each>
>> </xsl:template>
>> </xsl:stylesheet>
>>
>> This code functions on a file that is 112Megs in size. It fails on a
>> file that is 527Megs in size. The original export file is 704Megs in
>> size. The second and third files contain the xsi:type attribute which
>> I've cast the xsi and xs namespaces to dummy hrefs. A file of 485KB
>> succeeds with these dummy attributes present. The oXygen debug steps
>> through the stream() function to the doc() function before spinning
>> for a bit and then throwing the Java heap space exception.
>> I have yet to figure out how to extract Saxon from oXygen so as to run
>> in command line mode. I guess figuring this out is my next task.
>>
>>
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