<xsl:variable name="xlabel">
      <xsl:value-of select="id($target)/@xreflabel"/>
</xsl:variable>

For some reason, this second variable declaration doesn't work (i.e. no
data is assigned to it).

The id() finction works only if the XML source includes
a proper DOCTYPE declaration which also has to declare the
necessary attribute(s) as of type ID.
As already mentioned, using xsl:key and key() is more flexible
in this regard.