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Clause 4 is in need of a little work. 1) the sentence "That is, the ·instance-specified type definition· ·overrides· the ·selected type definition·." should be a note under 4.2. 2) the sentence "If an ·instance-specified type definition· exists and ·overrides· the ·selected type definition·, then the ·governing type definition· of E is the ·instance-specified type definition·, otherwise it is the ·selected type definition·." should be removed. 3) the note beginning "Note: If an element has an xsi:type ..." should be made less cryptic. The WG puts this one in the hands of the editors.
Changes 1) and 2) have been made and will show up the next time a status-quo document is generated. For change 3), I am inclined to suggest the following rewording, on which feedback would be welcome: If an element has an xsi:type attribute, the type definition indicated by that attribute normally takes precedence over the ·selected type definition· which would otherwise govern the element. If for some reason this does not happen (for example, if the xsi:type value does not ·resolve· to a known type definition, or if the type definition fails to ·override· the ·selected type definition·), then the element is invalid, since it has failed to satisfy clause clause 4. In this case, the ·governing type definition· of the element is the ·selected type definition· of its ·governing element declaration·, and the element is validated against that type as described in clause clause 5. The local validity of the element with respect to the ·governing type definition· is recorded in the [local type validity] property. The use of the ·selected type definition· when the ·instance-specified type definition· cannot be used allows useful validation to proceed in some cases even when the schema is incomplete. If I hear nothing suggesting other wording or pointing to problems with this wording, I'll integrate it into the status-quo document, too.
Looks good to me.
The proposal given in comment 1 has now been integrated into the status-quo documents pointed to from http://www.w3.org/XML/Group/2004/06/xsd-ed-pointers.html (member-only link). Accordingly I'm marking this issue resolved. David, as the chair and representative of the WG, would you please check to verify that the changes agreed upon have all been made and then close the issue? Thank you.