Xalan's internal representation is based on the XPath data model, not on the DOM data model. That means all XML Namespace declaration should appear, including the one for the "hard-wired" xml: namespace. In earlier versions of Xalan we were generally forgetting to generate that namespace node; D11 corrects that mistake.
But it should be appearing only a Namespace Node, not as an Attribute... and while it's present during Xalan's processing, it should normally not be included in the processor's output. You showed us how you're building the input document, but you didn't show us how you're processing it... so I can't say whether what you're seeing is a bug, or is working-as-designed.
