Saxon

The spec says, of [xsl:]default-collation:

If the implementation recognizes one or more of the resulting absolute collation URIs, then it uses the first one that it recognizes as the default collation.

There is some room for interpretation of what "recognizes" means, but Saxon is reporting an error in the case of collations that are "almost recognized", for example a UCA collation with an unrecognized parameter value. I think the only cases where an error should be reported are (a) where one of the URIs is relative and cannot be absolutized, and (b) where none of the collation URIs represents a known collation.