The statement about 1.2.2 and 1.3.x simply means that those are the versions the core development team has on hand and tests against. If you run into a problem with another version of the JDK, we may not be able to replicate it for diagnosis and repair.
Xalan currently appears to run on JDKs as early as 1.1.8 (though there is discussion of changing that). That means you can probably get away with 1.2.1_004... but we honestly don't know what all the differences between one level of the JDK and the next are, so the best we can do is tell you "try it and see". In the longer term, I do recommend that you upgrade your JDKs, since a major part of the reason the publishers release new versions is bug fixes.
