> ... we expected that this would give us an indented result 
> tree as output.  Instead we got an indented version of the 
> result tree as though default templates had been applied 
> (i.e. all metadata such as tags had been stripped out of the result).
> 
> Is this the expected result?  

No.

Can't think how setting indent="yes" could possibly cause this effect.

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