I think the rules for overriding functions in xsl:override should add the constraints:

(a) if the overridden function has identity-sensitive="no" then the overriding function must have identity-sensitive="no"

(b) if the overridden function has override-extension-functions="no" then the overriding function must have override-extension-functions="no".

Justification:

(a) the compiler may make optimizations based on the fact that a function was specified to not be identity-sensitive; for example, it may move function calls out of a loop. Overriding this attribute would invalidate such optimizations.

(b) when the compiler sees override-extension-functions="no" it should be able to generate a call to an extension function (ignoring the user-defined function) if one is available; since this may usefully involve generating inline code for the extension function, it should not have to reconsider this decision if the user-defined function is overridden in another package.