Michael Kay responded to my StackOverflow post [1]:

XQuery Update 3.0 is only a WG Note - it's unfinished work. The main new feature relative to 1.0, namely allowing an expression to return both a result and a pending update list, proved controversial and I think it basically hit a block where there wasn't enough consensus - or enough effort - to take it forward.

That leads me to this question:

What version of XQuery Update does Saxon support? XQuery Update 3.0? XQuery Update 1.0?