A quick google for "Xalan-C format-number" reveals that to enable the format-number function to work with Xalan-C you need to configure the product to use the ICU library. (If you need help with that, ask on the Xalan forums, not here!)
I expect the error occurred because the included stylesheet module date.format-date.template.xsl contains a call to format-number().
Michael Kay
http://www.saxonica.com/
Author, XSLT 2.0 and XPath 2.0 Programmer's Reference