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The primer should be modified to make it clear that substitution group members must be top-level elements. See: http://lists.w3.org/Archives/Public/www-xml-schema-comments/2002JanMar/0625.html
Proposed erratum available at: http://lists.w3.org/Archives/Member/w3c-xml-schema-ig/2002Aug/0010.html Erratum approved at Sept. 13 concall. Erratum E0-24 added.