>         We are planning to migrate from XSLT1.0 to XSLT2.0. I 
> am concerned about backward compatability. 

There's a detailed list of incompatibilities in an appendix of the spec.
Read it carefully, but don't get frightened by it: most of the differences
are things that very few stylesheets would ever do deliberately.

You can do the conversion in one step or two. The two-step approach is 

Step 1: switch to an XSLT 2.0 processor, leaving your stylesheets saying
version="1.0"

Step 2: change the version attribute to say version="2.0".

In the intermediate stage you are running XSLT 2.0 in XSLT 1.0 mode, which
causes some constructs to behave in a backwards-compatible way, for example
$a < $b converts both values to numbers rather than comparing them as
strings (that's probably one of the biggest incompatibilities). Personally,
I'd be inclined to do it in a single step, because it gets the job over
with.

> I have found on the 
> web that XSLT2.0 is too Saxon specific. Is that true?. Are 
> other open source transformers supporting XSLT2.0?.

Saxon is by far the most complete implementation available today, but others
are working hard to catch up.

Michael Kay
http://www.saxonica.com/