The error means that Saxon can't produce output conforming to HTML version 1.0. (Quiz question: was there an HTML version 1.0? I've no idea.)
I think you want XHTML version 1.0, so use method="xhtml".
The change in Saxon was to implement a change in the W3C spec: in the past, an unsupported version was simply ignored.
Michael Kay
http://www.saxonica.com/
Author, XSLT Programmer's Reference and XPath 2.0 Programmer's Reference