The answer to your first question is that it looks like a bug in the implementation of document() (the actually error is coming from XML::Parser because it is not able to open the file.) I'll have a look at adding a test case based on your example and see to fixing it for the next release. If you send me an email with examples of failing XML and XSLT then it will probably help expedite matters.
As to your second question you probably want to try setting the base argument to the XML::XSLT constructor to the location of your files.
Are you posting in the right place? Check out Where do I post X? to know for sure.
Posts may use any of the Perl Monks Approved HTML tags. Currently these include the following:
<code> <a> <b> <big>
<blockquote> <br /> <dd>
<dl> <dt> <em> <font>
<h1> <h2> <h3> <h4>
<h5> <h6> <hr /> <i>
<li> <nbsp> <ol> <p>
<small> <strike> <strong>
<sub> <sup> <table>
<td> <th> <tr> <tt>
Snippets of code should be wrapped in
<code> tags not
<pre> tags. In fact, <pre>
tags should generally be avoided. If they must
be used, extreme care should be
taken to ensure that their contents do not
have long lines (<70 chars), in order to prevent
horizontal scrolling (and possible janitor
Want more info? How to link
or How to display code and escape characters
are good places to start.