Saxon

The transformation of an XSLT 3.0 stylesheet that uses the parse-xml-fragment function fails if an external XML parser is provided. The custom XML parser should have an EntityResolver set.

To reproduce the problem you can execute from command line the following transformation:

d:\workspace\eXml>java -Xmx180m -Xss4096k -Xms48m -cp d:\workspace\eXml\lib\saxon9ee.jar;d:\workspace\eXml\lib\custom_parser.jar net.sf.saxon.
Transform -xsl:samples/test.xsl -s:samples/personal.xml -x:ro.sync.exml.test.XMLReaderWrapper
Error
  FODC0006: First argument to parse-xml-fragment() is not a well-formed and
  namespace-well-formed XML fragment. XML parser reported: I/O error reported by XML parser
  processing file:/d:/workspace/eXml/samples/test.xsl: Connection timed out: connect
Transformation failed: Run-time errors were reported

test.xsl

<xsl:stylesheet version="3.0" xmlns:xsl="http://www.w3.org/1999/XSL/Transform">
    <xsl:template match="/">
        <xsl:sequence 
            select="parse-xml-fragment('&lt;testFragment&gt;test&lt;/testFragment&gt;')"/>
    </xsl:template>
</xsl:stylesheet> 

The custom XML reader, XMLReaderWrapper, could be found as attachment. It is a simple implementation that wraps an XMLReader obtained using SAXParserFactory. The entity resolver has the following implementation:

  private EntityResolver entityResolver = new EntityResolver() {    
    @Override
    public InputSource resolveEntity(String publicId, String systemId) throws SAXException,
        IOException {
      return null;
    }
  };