we had to make some changes as suggested here:
-> http://osdir.com/ml/lang.perl.xml/2004-01/msg00105.html

That looks to be on the right path - though it's done a little differently to the way PGPLOT does it (where the same issue arises). In PGPLOT, DLEXT => 'xs.dll' is passed to WriteMakefile(). Setting $Config{DLEXT} as per the above webpage looks a little strange to me. But if dmake install for XML::LibXSLT installed a site/lib/auto/XML/LibXSLT/libxslt.dll.xs, then that part of the fix has worked fine.

The only other thing that needs to be checked is that DynaLoader.pm knows that it needs to load a dynamic library named libxslt.xs.dll (instead of the usual libxslt.dll). In PGPLOT.pm this is achieved with:

if($^O =~ /mswin32/i) {
  local $DynaLoader::dl_dlext = 'xs.dll';
  bootstrap PGPLOT $VERSION;
  }
[download]

That's all that should need to be done ... Oh, no ...wait.. I've just remembered that the DynaLoader.pm that ships with 5.10.0 won't allow that fix !! You'll need to grab a patched version of DynaLoader.pm (such as the one that ships with Activeperl builds 1002 and 1003) and replace Strawberry's existing DynaLoader.pm with it. (That's the first thing you should try - it may now be the *only* thing that you need to do.)

1. We have modified the @INC to directly look-up the "LibXSLT.xs.dll" that is present in "\site\lib\auto\XML\LibXML\". Still the same error persists.
2. The .dll file was read-only, and we made it read-write.

Neither of those steps should be necessary.
Update: And libxslt.xs.dll should *not* be located in site\lib\auto\XML\LibXML. It should be in site\lib\auto\XML\LibXSLT. (I'm hoping that was a typo :-)
Update 2: DynaLoader.pm will be fixed in 5.10.1. (The problem with the current version was reported a few days before 5.10.0 was released - but they went ahead and released 5.10.0 anyway.)

Cheers,
Rob