I can confirm the error with XSLTC from Xalan 2.5.2, I didn't try it with XSTLC from Xalan 2.5.1 yet. But it works with Xalan 2.5.1 itself, so I can only recommend you to downgrade to this version.
Hmm.... I am using with Xalan 2.5.2 and it works to me. As I posted before it is a kind of switching between xalan and xltc.
The problem with Xalan 2.5.2 is not the <xsl:param/> or the woody stylesheets in general, but this bug: http://nagoya.apache.org/bugzilla/show_bug.cgi?id=24457.
Joerg
