W3C has released fresh versions of the Candidate Recommendations of XML Query 1.0, XSLT 2.0, XPath 2.0 and supporting documents. No big deal changes - xdt:* types has been moved to xs:* namespace (damn XML Schema). See new XQuery1/XPath2 type system below. Looks like XSLT2/XPath2/XQuery1 are moving fast toward Proposed Recommendation. What's weird is that new documents all say "This specification will remain a Candidate Recommendation until at least 28 February 2006." Must be a mistake. Anyway, what are now chances for XSLT 2.0 in the .NET? Next major .NET release (Orcas) is expected October 2007 or so (forget newly announced .NET 3.0, which is actually .NET 2.0 + Avalon + Indigo). Plenty of time for XSLT2 to reach Recommendation status, even provided that Microsoft actually freezes codebase 6 months before shipping.
We all remember that major arguments for Microsoft not implementing XSLT 2.0 were XQuery (they decided it's better) and XSLT2 draft status (so don't repeat WD-XSL story). Now that XQuery is wiped out from .NET and XSLT2 becoming full recommendation, what could be the next argument against implementing it? Probably XLinq. But as XLinq evolves it becomes clear that XLinq doesn't really replaces XSLT.
.NET provides amazing support for XSLT1. Developing, debugging with Visual Studio, one of the best XSLT processors - XslCompiledTransform. That's great and hence XSLT is everywhere nowadays and you know what - we want more! XSLT 1.0 sucks, give us XSLT 2.0!