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The first bullet of section 19.2.1.2 indicates that the type specified in [xsl:] type is used as the "processor-stipulated type definition" in applying the rules in section 3.3.4 "Element Declaration Validation Rules", validation rule "Schema-Validity Assessment (Element)", clauses 1.2 and 2. Subclause 1.2.1.1 refers to section 5.2 of the Schema Structures spec. The first item in the numbered list in 5.2 indicates that the type identified by the user or application should be a complex type definition. XSLT 2.0 defines ERR XTSE1530 if the [xsl:]type for an attribute refers to a complex type. However, there is no corresponding error if the [xsl:]type for an element refers to a simple type. The XSL WG should track bug 2723 (http://www.w3.org/Bugs/Public/show_bug.cgi? id=2723) to get Schema's view on this. If Schema relaxes the requirement, no change is required to XSLT; otherwise, XSLT needs a static error.
Resolved to address this with a note at the end of the first bullet: It is not an error if the identified type definition is a simple type, although <bibref ref="xmlschema-1"/> does not define explicitly that this case is permitted.