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Constraint 3 of "Schema Representation Constraint: Attribute Group Definition Representation OK" prohibits direct circular attribute group references, but doesn't appear to prohibit indirect circular references. See Issue 1 from the following mail: http://lists.w3.org/Archives/Public/www-xml-schema-comments/2001JulSep/0121.html
Tentative resolution: http://www.w3.org/XML/Group/2001/10/xml-schema-ftf-minutes#ab1b3b3b3b1b5 Resolution: The WG resolved that the constraint (at the component level) needs to be added. Erratum pending. Proposed text: http://lists.w3.org/Archives/Member/w3c-xml-schema-ig/2002Oct/0184.html reviewed and approved at Oct. 11 telecon. Erratum E1-20 added