>   Is "to a new element" including document nodes?  It is not

I think you should raise that as a bug in the spec. It seems to me that
document nodes should be included. A similar note occurs in all other
node constructors (xsl:element, xsl:processing-instruction, etc and in
those cases it is explict that document nodes also count, eg xsl:element
says

http://www.w3.org/TR/xslt20/#element-element

  (Note, however, that this is only relevant when creating parentless
  elements. When the new element is copied to form a child of an element
  or document node, the base URI of the new copy is taken from that of its
  ^^^^^^^^^^^^^^^^^
  new parent.)


David

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