We tried to switch to libxml2 a while ago because xerces is slow but it was unstable and caused SlickEdit to crash so we dumped it. Maybe they've fixed the problems. Also, I don't know if libxml2 can handle these new schema enhancements.
When I run the Xerces command line tool (StdInParse -s -n ), it fails like SlickEdit does on the schema above (after fixing the file not found problem).
We'll have to look into this more.