Well... well... just see

http://www.w3.org/TR/2004/WD-xhtml-modularization-
20040218/abstract_modules.html#s_textmodule

which is probably more accurate.

Much better, thank you.

how come the 'latest' version of the xhtml 1.1 recommendation shows that PCDATA
can be resident immediately within a blockquote?

Hi dododododoot, I'm afraid the W3C Validator Team can't answer such questions, 
we don't write or maintain the HTML/XHTML specifications. If you look at the 
XHTML 1.1 Recommendation you will note that the Status sections suggest to send 
comments to the www-html-editor@w3.org mailing list. The HTML Working Group 
should be able to answer such questions. Please also check the document cited 
in comment #1.

Dear Björn, you misunderstand dododododoot's question. It was rhetorical.
The current XHTML 1.1 recommendation, http://www.w3.org/TR/xhtml11/, points to

http://www.w3.org/TR/xhtml-modularization/abstract_modules.html#s_textmodule
Modularization of XHTML W3C Recommendation 10 April 2001

Not to

http://www.w3.org/TR/2004/WD-xhtml-modularization-20040218/abstract_modules.html#s_textmodule
Modularization of XHTML 1.0 - Second Edition W3C Working Draft 18 February 2004

Although this second "Modularization" document comes later it is only a working
draft.

I have emailed www-html-editor@w3.org to point out that PCDATA was not included
in the blockquote. Maybe this is deliberate, maybe it is a mistake. Either way
when you want to validate against XHTML 1.1, you want it to validate against THE
recommendation, not a working draft.

The recommendation DOES allow PCDATA within blockquotes. By the way the
recommendation does make sense.
It would seem pointless to force page authors to code:
<blockquote><p>I am the greateast</p></blockquote>

Rather than allow them, as the recommendation does allow,:
<blockquote>I am the greatest</blockquote>

I, for one, would be grateful if you (or whoever) where to recode the Validator
to follow the recommendation.

Interestingly, while [1] lists blockquote contents as (PCDATA | Heading | Block
| List)*, the DTD [2] says the following:

<!ENTITY % blockquote.element  "INCLUDE" >
<![%blockquote.element;[
<!ENTITY % blockquote.content
     "( %Block.mix; )+"

Now, I don't particularly see %Block.mix or anything related EVER declared, I
guess from body.content also having just a "( %Block.mix; )+", that this does
not include #PCDATA.

I personally don't see this as a good idea, since, well, blockquote is little
more than a div with phrasal information, really.

Now, at the end of the DTD [3], there we see the following:

<!ENTITY % blockquote.content
     "( #PCDATA | %Flow.mix; )*"
>

<!ENTITY % body.content
     "( #PCDATA | %Flow.mix; )*"
>

Which seems to allow PCDATA in both of these, directly.

It's perfectly understood (Re: #4) that this is not the place recommend changes
to the DTD, the Recommendation, or anything like that, but I believe it's
important to bring lights to the inconsistency between the recommendation and
the DTD.

[1] http://www.w3.org/TR/xhtml-modularization/abstract_modules.html - XHTML
Modularisation Recommendation, W3C, 2001, Abstract Modules chapter

[2]
http://www.w3.org/TR/xhtml-modularization/dtd_module_defs.html#a_module_Block_Phrasal
- XHTML Modularisation Recommendation, W3C, 2001, DTD implementation of Text Module

[3]
http://www.w3.org/TR/xhtml-modularization/dtd_module_defs.html#a_module_Legacy_Redeclarations
- XHTML Modularisation Recommendation, W3C, 2001, DTD implementation, Legacy
Redeclaration