I started testing the jQuery Transform plugin with a set of pretty convoluted XSLT documents that I use on the target web site, which relies almost exclusively on browser-side XSLT transformations. All server responses are initially encoded as XML and transformed on the server only if the browser does not support XSLT (or if a spider has come to visit us). Not surprisingly, the XSLTs are heavily loaded with xsl:import and xsl:include statements.
Initially, I tried to control as much as possible: read XML and XSLT into strings and perform the transformation when everything has been collected. This approach fails miserably in IE7. The reason is simple: if I pass XSLT source or parsed XSLT object to the $.transform routine, the routine tries to fix xsl:import and xsl:include references using the current web page’s URL as the base reference, which is wrong if the stylesheet has been loaded from another directory.
Conclusion: if you read XSL documents from another directory and pass them as string to the $.transform routine, make sure you use absolute references in import/include statements.