It appears that when using xsl:element with a non default namespace for the
name attribute the output element namespace is not computed as expected.

Here is a small example (mixing xul, xhtml, xsl) : 
1/ XML 
<?xml version="1.0"?>
<a>
hhhh
</a>

2/ XSL 
<?xml version="1.0" encoding="iso-8859-1" ?>
<xsl:stylesheet version="1.0"
    xmlns:xsl="http://www.w3.org/1999/XSL/Transform"
    xmlns="http://www.mozilla.org/keymaster/gatekeeper/there.is.only.xul"
        xmlns:xhtml="http://www.w3.org/1999/xhtml"   >
   <xsl:output method="xml" indent="yes" encoding="iso-8859-1" />
   <xsl:template match="/">
      <?xml-stylesheet href="chrome://global/skin/" type="text/css"?>
      <windows>
        <vbox flex="1">
                   <xsl:apply-templates />
            </vbox>
      </windows>
   </xsl:template>
   <xsl:template match="a">
         <vbox>
                <xhtml:div>Hello</xhtml:div>
                <xsl:element name="xhtml:div">
                        foo
                </xsl:element>
         </vbox>
   </xsl:template>
</xsl:stylesheet>

xsltproc produces :
<?xml version="1.0" encoding="iso-8859-1"?>
<windows
xmlns="http://www.mozilla.org/keymaster/gatekeeper/there.is.only.xul" x
mlns:xhtml="http://www.w3.org/1999/xhtml">
  <vbox flex="1">
    <vbox>
      <xhtml:div>Hello</xhtml:div>
      <xhtml:div
xmlns:xhtml="http://www.mozilla.org/keymaster/gatekeeper/there.
is.only.xul">
                        foo
                </xhtml:div>
    </vbox>
  </vbox>
</windows>

while sablotron, msxml produce the expected result :

<?xml version="1.0" encoding="iso-8859-1"?>
<windows xmlns:xhtml="http://www.w3.org/1999/xhtml"
xmlns="http://www.mozilla.org/keymaster/gatekeeper/there.is.only.xul">
  <vbox flex="1">
    <vbox>
      <xhtml:div>Hello</xhtml:div>
      <xhtml:div>
                        foo
                </xhtml:div>
    </vbox>
  </vbox>
</windows>

Of course using an additionnal namespace="http://www.w3.org/1999/xhtml"
solves the problem. 

Stephane