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Under 19.8.7.14 Streamability of Inline Function Declarations (http://www.w3.org/TR/xslt-30/#streamability-of-inline-functions), the text under the first numbered item is: 1. If the body of the inline function contains a reference to a variable defined in the bind-group attribute of an xsl:for-each-group element external to the inline function, then free-ranging. but this also applied to the bind-group attribute of xsl:merge and to the bind-source attribute of xsl:merge-source.
The WG discussed this during the ftf meeting in Prague and agreed that this needs fixing. Cf. bug 24509.
Change applied.