This test expects XD0026 when evaluating:

   <p:when test="/foo">

The description of XD0026 is:

    It is a dynamic error if the select expression makes reference to the context node, size, or position when the context item is undefined.

    See: p:variable, p:option, p:with-option, p:with-param

Thus it does not apply to the test expression.  The test should expect err:XD0023 instead (or the specification is incorrect).

    It is a dynamic error if an XPath expression is encountered which cannot be evaluated (because it is syntactically incorrect, contains references to unbound variables or unknown functions, or for any other reason).

    See: XPaths in XProc

The existence of XD0023 really makes XD0026 redundant.