~> today -- or just have browser aware output. And of course, 
~> it requires that your XML is already pretty much in order 
~> and fully complete for rendering. 
~ 
~Unless I am mistaken, it also requires that CSS be enhanced.

If you take a look at the CSS2 specs on w3.org you can see that the selectors can be pretty useful.
http://www.w3.org/TR/REC-CSS2/selector.html
I was actually rather shocked at some of the things you can do with it. The conditionality for links is pretty cool.
I don't really think that css is the hindering factor. It is the browser support for it.

~Suppose my otherwise ready-for-frying XML file contains 
~ <xref url="www.microsoft.com">the gates of hell</xref>
~and
~ <figure url="somestupidpenguin.jpg"/>

~I never did understand how to explain via CSS that these
~are respectively a link and an inline image. is not CSS
~completely tied to the semantics of HTML elements?

I believe you are correct here. I don't think that you can take an XML tag like <xref> and map it to an <a> with css. I believe you would have to convert to HTML first.

Brad

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