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Both in XSD 1.0 and in XSD 1.1, the property [nil] is described thus: true if clause 3.2 of Element Locally Valid (Element) (§3.3.4) above is satisfied, otherwise false (although in 1.1 the section number is different). The problem is that the relevant clause takes the form "if (conditions) then (consequences)", where the conditions are (a) the element declaration in question is nillable, (b) the element instance has an xsi:nil attribute, and (c) the element instance has xsi:nil = true. If the element declaration is not nillable, or if the element instance has xsi:nil = false, then the antecedent in clause 3.2's conditional is false, and clause 3.2 is thus satisfied. This has as a consequence that if element type my:E is nillable, then the instance <my:E xsi:nil="false">Unusual weather we're having here, ain't it?</my:E> seems to have [nil] = true. The definition of [nil] needs to be recast. One clumsy but accurate change would be true if clause 3.2 of Element Locally Valid (Element) (§3.3.4) above applies and is satisfied, otherwise false This issue is strictly speaking unrelated to that in bug 5257, but may be solved for XSD 1.1 at the same time.
At our call today, the XML Schema WG agreed that this needs to be fixed, and should be classed as needsDrafting. No clone is needed for 1.0, since the error was introduced inadvertently during a revision for 1.1. The editors expect a pending proposal for bug 5195 to address this problem.
This issue was resolved by the proposal at http://www.w3.org/XML/Group/2004/06/xmlschema-1/structures.b5195.html (member-only link) adopted by the WG 28 March 2008.