Yes, I've noticed that behaviour in AltovaXML too. The same happens in Saxon, of course, if you simply forget to switch validation on for the input document. It's a good idea to write your stylesheet so there is a template rule for element(*, xs:untyped) that catches the fact that untyped data has been supplied, and throws an error.
Michael Kay
http://www.saxonica.com/
Author, XSLT Programmer's Reference and XPath 2.0 Programmer's Reference