> This isn't working. I am using XSLT1.0

Right, there is no replace() in XPath 1.0 (and thus in XSLT 1.0). 

Probably the right way to do this in XSLT 1.0 is to use <xsl:number>.
But, depending on your data, you might get away with just sticking a
'0' in front of anything that is only 2 characters long:

  <xsl:variable name="formatted_in">
    <xsl:choose>
      <xsl:when test="string-length($in)=2">
        <xsl:text>0</xsl:text>
        <xsl:value-of select="$in"/>
      </xsl:when>
      <xsl:otherwise>
        <xsl:value-of select="$in"/>
      </xsl:otherwise>
    </xsl:choose>    
  </xsl:variable>