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The rule in 4.13: "The namespace URI specified in a namespace declaration must not be http://www.w3.org/XML/1998/namespace or http://www.w3.org/2000/xmlns/ [err:XQST0070]." should apply to default namespace declarations as well as namespace declarations. (Note that according to the definition in 4.13, a "default namespace declaration" is not a "namespace declaration", and the spec is scrupulous in making this distinction).
Are you proposing that this should only apply in XQuery 3.0? At the moment in XQuery 1.0, it appears that declaring the default element/function namespace to be http://www.w3.org/XML/1998/namespace or http://www.w3.org/2000/xmlns/ is fine, so long as nothing makes use of it (which is a tad obsurd).
It's clearly an omission in the 1.0 spec (or more specifically, erratum E19 [1], that's carried forward to 3.0. The error is defined for namespace declarations (i.e. with an explicit prefix) but not for default namespace declarations - there's no rationale for having any difference. [1] http://www.w3.org/XML/2007/qt-errata/xquery-errata.html#E19
The Working Group agrees.