Is there a way to tell xalan to ignore the DTD defined in the XML file and just process the transformation without using the DTD?

You have to use a non-validating parser. Xalan itself
(an XSLT processor) has actually nothing to do with
validation.

If you use Xalan embedded, you can try to create a
parser with validation turned off explicitely:

 Transformer transformer=TransformerFactory.newInstance().newTransformer(
   new StreamSource(new File("foo.xsl")) );
  SAXParserFactory saxParserFactory=SAXParserFactory.newInstance();
  saxParserFactory.setValidating(false);
  XMLReader xmlReader=saxParserFactory.newSAXParser().getXMLReader();
  transformer.transform(
   new SAXSource(xmlReader,new InputSource(new FileInputStream("input.xml"))),
   new StreamResult(new File("result.stuff")));

There is such stuff like "documentation", look for
the one for JAXP API.