The essence of the test is:

    <!-- Heterogeneous sequence on rhs of "/" -->
   
    <xsl:variable name="f"><a b="3"/></xsl:variable>   

    ...   <xsl:value-of select="$f/(@b, upper-case#1)"/>

Now $f is a document node, so @b selects nothing, so the RHS of "/" does not contain a node So the actual error is FOTY0013, failure to atomize a function item.

The intent of the test can be achieved by declaring $f with as="element()".