After a long discussion today with Charles Foster we concluded that the base type for all EQNames, aptly named xsl:EQName, allows for illegal names.

The current definition is:

    <xs:union memberTypes="xs:NCName xs:QName">
      <xs:simpleType>
        <xs:restriction base="xs:token">
          <xs:pattern value="Q\{.*\}\i\c*"/>
        </xs:restriction>
      </xs:simpleType>
    </xs:union>

this allows for "Q{x}a:b:c", which is illegal. Or even "Q{x}:::y:::".

A possible solution is to disallow the ":", but using a subtraction class:

<xs:union memberTypes="xs:NCName xs:QName">
  <xs:simpleType>
    <xs:restriction base="xs:token">
      <xs:pattern value="Q\{.*\}[\i-[:]][\c-[:]]*"/>
    </xs:restriction>
  </xs:simpleType>
</xs:union>

I've tested this definition and it seems correct.