You don't make it clear whether this error is occurring in your XML/XSLT editor or when you compile the stylesheet.
Anyway, some tools attach unreasonable significance to the presence of an xsi:schemaLocation attribute, and treat it as a license to perform schema validation, which you don't want to happen here. You could of course switch to generating this attribute using xsl:attribute, or if you prefer you could use <xsl:namespace-alias> to set an alias for the xsi namespace, so that the namespace used in the stylesheet is different from the "real" xsi namespace.
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Michael Kay
http://www.saxonica.com/
Author, XSLT 2.0 and XPath 2.0 Programmer\'s Reference
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