The validator does not parse CSS1 escapes correctly, it validates the example below against CSS2 despite the fact that you select grammar=CSS1.
 
I believe that the following CSS fragment is legal CSS1, if my reading of CSS 1 is correct, yet the validator incorrectly reports an error with grammar=CSS1 selected. 
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Test case:

	selector { color: r\0065d; }


IMPORTANT NOTE: to reproduce this defect, grammar=CSS1 must be selected.  (The example is not valid CSS2.)
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Reasoning: in CSS1 no space is used after the numeric escape sequence, and if filled out to the maximum of four characters, no terminator is required. So in CSS1 the property value is "red". See the productions for "escape" in CSS1 appendix B.

Regards,

Cecil Ward.