I am proposing that Xalan follow Xerces, and many other projects, and restructure to enable proper support for "sane includes". I am looking for approval to implement, test and contribute this change to Xalan.
For all the reasons you discussed, I have been working on exactly this for the next release. To me it's the pre-cursor to re-doing the make/configure system. The problem is more one of logistics than work. (Although getting free time has been a big problem of late.)
We also discussed taking a more makefile approach to the problem, and creating the xalanc directory during build time. This is what is done in the xml-security-c library, but it's a pain in the proverbial because of what it does to VC++.
Cheers,
Berin