Well, you're definitely running Xalan rather than Saxon. Which doesn't itself explain the exception, but if you're loading the wrong software then it's not that surprising. Because web servers do funny things with class loaders and classpaths, the best strategy for ensuring you load Saxon is probably to make a call of System.setProperty( "javax.xml.transform.TransformerFactory", "net.sf.saxon.TransformerFactoryImpl") from your application code just before the newInstance() call; alternatively if you don't mind a compile-time dependency on Saxon in your code, just instantiate net.sf.saxon.TransformerFactoryImpl directly (it's a lot faster anyway).
Michael Kay
http://www.saxonica.com/
Author, XSLT Programmer's Reference and XPath 2.0 Programmer's Reference