Michael Kay has released a new version Saxon, the world's finest XSLT parser. Don't believe me? Give Saxon 8.7.3 at try here: http://saxon.sourceforge.net/#F8.7.3SA
Saxon 8 includes support for XSLT 2.0, XPath 2.0 and XQuery. It's the first XSLT parser that I recommend, as I've had nothing but success in working with it.
Bob DuCharme has a great article on XQuery and Saxon at: http://www.xml.com/pub/a/2005/03/02/xquery.html