Excellent point David.

Michael Kay, does SAXON implement xsl:iterate using recursion? Does
SAXON implement xsl:for-each using recursion?

That's the wrong question:-)
If you naively implement recursion as a recursive call then you'd never
get streaming capability, but the point is that a tail recursive
function can be (and is, usually) rewritten by the complier to
essentially turn into a loop (as there is no need to make a stack of all
the local state of each function call as the local state is never used
after the recursive call (hence the name _tail_ recursion).

For-each is a different kettle of fish, but the point is if you re-write
a tail recursive function to use xsl:iterate, it doesn't necessarily
make any difference as the compiler can make similar rewrites
internally. (Saxon can certainly detect and re-write recursive calls, I
don't know if its rewrites are streamable but it is certainly allowed to
make them so)