Just in case you did not know this already -
I was able to execute XSLT 2.0 transformations on ORABPEL 10.1.3.1 runtime.
Even though the graphical modeler does not support this, I could actually design and develop XSLT 2.0 transformation code.
XSLT 2.0 has significant advantages over 1.0 .
Five XSLT 2.0 Features that simplify XML Document transformations - http://www.oracle.com/technology/pub/articles/wang_xslt.html
Whats new in XSLT 2.0 - http://www.xml.com/pub/a/2002/04/10/xslt2.html
XSLT 2.0 Specification - http://www.w3.org/TR/xslt20/
XQuery 1.0 and XPath Functions and Operators - http://www.w3.org/TR/xpath-functions/
XPath 2.0 Specification - http://www.w3.org/TR/xpath20/
You need to ensure that the version attribute on your stylesheet element in the XSLT has the value "2.0" to ensure that the XSLT 2.0 processor executes your transformation code.