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The relevance of XML 1.1 to F&O has to be the different significance of names in XML 1.1. However, F&O imports all its definitions from XML Schema Part 2 version 1.0, which definitely refers only to XML 1.0. Therefore, either the reference to XML 1.1 should be removed as irrelevant, or an alternative definition of the name datatype should be provided that provides XML 1.1 names as an option, overriding the XML Schema definition. I'm reporting the consensus of the XML Core WG here.
The WGs decided on 9/27 to fix this bug by adding a reference to the note http://www.w3.org/TR/xml11schema10 on the subject of XML 1.1 conformance in the host language documents -- XSLT 2.0 and XQuery.