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This issue was originally reported by XML Schema WG. Systematise and correct the handling of annotations and out-of-bound attributes in the PSVI. This item was discussed in the meeting of 2003-11-04 (http://www.w3.org/XML/Group/2003/11/xml-schema-ftf-minutes.html) and the meeting of 2003-11-21 (http://lists.w3.org/Archives/Member/w3c-xml-schema-ig/2003Nov/0050.html); Noah Mendelsohn to draft a phase-1 proposal (making sure that foreign-namespace attributes are not lost). Proposal: Henry Thompson, proposing a resolution for RQ-14, RQ-19, RQ-130 and RQ-131. (http://lists.w3.org/Archives/Member/w3c-xml-schema-ig/2003May/0121.html) This item was discussed, and phase-1 agreement was reached, in the meeting of 2004-03-18 (http://lists.w3.org/Archives/Member/w3c-xml-schema-ig/2004Mar/0060.html).
A proposal to resolve this issue has been placed at http://www.w3.org/XML/Group/2004/06/xmlschema-1/structures.bannotations.200610.html (member-only links) for review and action by the WG.
The proposal mentioned in comment #1 was accepted by the WG during its meeting of 20 October 2006. The changes have been integrated into the status quo document and will appear in due course in the next published working draft.