This query uses a module, however, there's no <module> in the catalog.

I suggest moving valtrans-ins-003-mod1.xq into TestSources and adding

      <module ID="valtrans-ins-003-mod" 
              FileName="TestSources/valtrans-ins-003-mod1.xq" 
              Creator="...">
         <description last-mod="...">Library module for "revalidate-valtrans-ins-003" query</description>
      </module>

to the catalog, and modifying the query catalog entry to include:

 <module namespace="http://www.w3.org/xqupd/tests/ns/valtrans-ins-003">valtrans-ins-003-mod</module>

It should probably also accept the error code XQST0016 (module feature not supported).