via Kurt Cagle @ http://www.oreillynet.com/xml/blog/2007/02/the_horserace_gets_exciting_xs.html

Ibm sure this is going to get blogged almost immediately, but Ibll just add my two cents here - Microsoft has formally announced that with the publication of the XSLT 2.0 Recommendation the XML Team has commenced working on a new XSLT 2.0 implementation that will be available as part of the .NET platform, with the very real possibility that it will also be folded into the Internet Explorer browser.

So that last part threw me, as this was the first time I had heard mention of XSLT 2.0 and IE. But in researching this a bit further,

via http://blogs.msdn.com/xmlteam/archive/2007/01/29/xslt-2-0.aspx#1584808

We are discussing whether to implement XSLT2 in the native stack (MSXML3 and MSXML6). The needs of IE are the biggest consideration (it uses the native libraries), and we will definitely coordinate with the IE team.

best,
-Rob