I think I can answer myself.

The stylesheet needs to have the version hardcoded in the root element,
at least from what I can tell, like
xpath-default-namespace="urn:oasis:names:tc:xliff:document:1.2", and it
must be the same version as the input XML files.

In Saxon 10 there is a command line switch and I think also an API
switch to set the default XPath namespace.

Also see the section "Using Shadow Attributes to Parameterize XPath
Default Namespace" in https://www.w3.org/TR/xslt-30/#shadow-attributes
for earlier versions of Saxon supporting XSLT 3 (i.e. 9.9 and 9.8).